June 26, 2020 / 11:44 AM / 9 days ago

UPDATE 1-Britain and France suggest phased approach to global digital tax talks

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By Leigh Thomas

PARIS, June 26 (Reuters) - Britain, France, Italy and Spain suggested a "phased approach" to unblock global digital taxation talks in a joint letter to U.S. treasury secretary Steven Mnuchin last week, rebuffing his call for a pause in negotiations.

Mnuchin's suggestion of a break has fuelled European concerns about Washington's commitment to reach a deal this year on the first major rewriting of cross-border tax rules in a generation.

In the absence of a global agreement, the U.S. has threatened trade retaliation against European countries that create their own digital taxes as a way to raise revenue from the local operations of big tech companies such as Alphabet Inc's Google and Facebook Inc.

"We believe that a phased approach, initially focused on automated digital services, would ...make a political agreement within reach this year," Mnuchin's four European counterparts to the talks at the Organisation for Economic Cooperation and Development said in the letter, seen by Reuters.

"It would also pave the way for possible transitional solutions to be discussed with the United States, notably with respect to existing or upcoming national digital service taxes," they added.

Fuelling fears at the OECD of a new trade war, Washington has threatened to impose trade tariffs on French Champagne, handbags and other goods after Paris created its own tax on digital giants last year.

Critics say the firms profit enormously from local markets while making only limited contributions to public coffers, but Washington says the taxes discriminate against U.S. firms and it has opened investigations into the charges in several countries.

The OECD had already said last month that a staged process might be necessary, although a year-end deadline for a deal remained possible.

The nearly 140 countries participating in the talks are due to meet again, online, on July 1, although it is unclear whether the U.S. will participate, officials say. The aim is to wrap up the negotiations by October, a particularly sensitive time for Washington as it prepares for a presidential election. Although the U.S. has pushed for a broader scope to include non-tech companies with digital businesses, the OECD said in May there was emerging consensus to focus on digital companies, in line with calls from European countries.

The talks are running in parallel with negotiations on a minimum level of taxation for big multinational companies, which have been going more smoothly and are likely to generate much more revenue for government coffers, the OECD says. (Reporting by Leigh Thomas; Editing by Kirsten Donovan)

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