Digital levies may be resurrected if global tax deal flops

Viorika

Talk of a Digital Service Tax (DST) is back on the table amid fears that an agreement to implement a Global Minimum Tax (GMT) will fail to get implemented. Last year, a group of 140 nations agreed to an effective levy of 15% on major multinationals regardless of where they are based, making it less advantageous to relocate operations to countries with lower tax rates. For example, an online company that has no physical presence in a country, but has significant sales there via digital advertising, would be obligated to pay some taxes to the government of that nation.

Fine print: President Biden and Treasury Secretary Janet Yellen are on board with the Global Minimum Tax, but they face challenges of getting the agreement through Congress. The changes could require the Senate to alter existing tax treaties, which would take a two-thirds vote and at least some GOP support. Republicans have already expressed opposition to any rise in taxes, especially in the current economic environment, while some lawmakers have condemned the idea of ceding taxing authority to other governments.

"I really am not able to say whether we are going to wait for six more months or nine more months, but I believe the longer these negotiations will take, the less of a chance of actually reaching an agreement," said Zbynek Stanjura, finance minister of the Czech Republic, whose country holds the rotating EU presidency. "If we are not able to reach an agreement mid or long term, then Europe will go back to talks about digital tax."

Outlook: Any unilateral return to a Digital Service Tax is likely to spark trade tensions with the U.S. at a time when the parties could least afford it. Under the EU's previous plan, tech giants like Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG) (NASDAQ:GOOGL), Meta (NASDAQ:META) and Amazon (NASDAQ:AMZN) would face a series of separate digital taxes from multiple countries - for marketplace services and online advertising - that would be based on a threshold of annual revenues. Many caution that this would make doing business less internationally competitive than a GMT, complicate matters by paying different taxes in every country, and may even be passed on to small businesses and local consumers that use their platforms.