The EU has defied the US by vowing to pursue its own plans for digital taxes after Washington pulled out of global negotiations on the matter and threatened to impose tariffs in retaliation against national levies.
France’s finance minister Bruno Le Maire on Thursday labeled the US decision to suspend the OECD-led talks a “provocation” and said Paris would apply a tax on big technology companies “whatever happens.”
Paolo Gentiloni, EU economy commissioner, said Brussels was prepared to advance its own EU-wide proposals. The UK Treasury has also vowed to press ahead with its digital tax, even as it is engaged in negotiations with Washington over a potential free trade agreement.
The warnings follow a letter to four European finance ministers in which US Treasury secretary Steven Mnuchin said he was pausing the negotiations because they had reached an “impasse.”
The move heightens transatlantic tensions, with the threat of more trade disputes as individual countries pursue their own taxation plans.
“There’s a real prospect we end up with a trade war” following the latest development, said Dan Neidle, tax partner at Clifford Chance.
The OECD process needed US agreement to make any deal legally watertight, and European nations would prefer getting the approval of US companies, Mr. Neidle said. So the likely result was “the process falls apart, and we see a plethora of unilateral digital services taxes,” which would turn into “an unprincipled mess” followed by US countermeasures.
Robert Lighthizer, US trade representative, has already announced a probe into whether digital tax measures in the UK, Spain, Italy, and other countries amount to an unfair trade practice, which would allow Washington under US law to unilaterally slap tariffs on imports from the countries involved.