The G7 agrees on the need to tax digital giants

The G7 countries agreed Thursday on the need to adopt a common approach to address the challenges of the digital economy and move towards a minimum taxation of corporate profits.

The agreements on the subject were announced after a meeting of finance ministers and central bank governors of the seven most industrialized countries on the planet.

The French Minister of the Economy, Bruno Le Maire, welcomed this outcome, announced after a dispute between Washington and Paris on the taxation of digital giants in France erupted in the open last week.

“Today, we concluded an ambitious agreement to advance both digital taxation and minimum taxation,” he said, referring to” a real breakthrough “and” a step forward.”

US Treasury Secretary Steven Mnuchin was less triumphant in his comments. “We have made significant progress, but there is still work to be done,” he warned.

I would not say it’s a breakthrough, but I’m optimistic and it’s a big step in the right direction.

Steven Mnuchin, Secretary of the Treasury of the United States

Minimum tax rate and taxation of digital activities

According to a summary of the discussions published by France, the G7 ministers agreed that a minimum level of effective taxation, as for example the case of the American Gilti regime, will help ensure that companies pay their fair share of tax.

The Gilti scheme ( Global Intangible Low-Taxed Income Plan ) is to tax 10.5% profits abroad by US firms to encourage them to repatriate.

The agreement also addresses the need to adapt tax rules to allow the taxation of activities that occur without physical presence in a territory, a provision that is particularly targeted at digital giants such as Google, Apple, Facebook and Amazon.

These new tax entitlements “could be determined by reference to criteria that reflect the level of active participation of companies in the state of a customer or user, such as high-value intangible assets or the use of ‘a highly digitized model’, according to the document made public.

These rules will have to be “easy to implement and simple”, one specifies.

The ministers also agreed on the need to reach “a global agreement on the outline of the architecture of these rules by January 2020”, it is noted in the summary.

Washington’s “worries” remain

The French presidency of the G7 Finance had not hidden its intention to take advantage of the meeting of Chantilly to inject a new impetus to the international discussions on the subject.

Last week, the French Parliament passed a bill imposing 3% of revenue generated in France by the digital giants, despite threats of reprisals from the United States.

The Trump administration has announced an investigation into the effects of this tax under Section 301 of the US Trade Act. This same process resulted in the imposition of tariffs against Chinese products last year.

The Mayor had recalled that Paris intends to abandon this tax as soon as an agreement would be concluded at the OECD level. He had invited Americans to see it as an “incentive to accelerate even more work on the international solution of digital taxation.”

The British government also unveiled last week a bill that plans to tax the digital giants.

“From the United States’ point of view, we have significant concerns about France and the United Kingdom,” Mnuchin reiterated on Thursday.

He welcomed, however, that his two allies had declared themselves in favor of “an international solution.”

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