Members of the European Parliament told representatives of large U.S. tech companies that digital services taxes would be “back on the table” if the United States doesn’t adopt pillar 1 of the OECD tax plan.
Representatives from Amazon, Google, and Meta told MEPs they “hate nothing more” than DSTs and would prefer to see pillar 1 implemented for tax certainty, Paul Tang, a Dutch member of the Progressive Alliances of Socialists and Democrats and chair of the subcommittee on tax matters (FISC), told Tax Notes. A delegation of FISC members met with U.S. lawmakers, nongovernmental organizations, and other stakeholders to discuss tax issues May 23-25 in Washington.
Nearly 140 jurisdictions in the G-20/OECD inclusive framework on base erosion and profit shifting reached political agreement in October 2021 on a two-pillar plan to modernize international corporate tax rules. While the original timeline called for the rules to take effect in 2023, implementation may now be delayed by a year.
Pillar 1 calls for a formulaic reallocation of residual profits that the largest multinational enterprises earn in countries where their consumers are located even if they lack a permanent establishment. Pillar 1, which would be implemented by multilateral convention, requires the immediate withdrawal of unilateral DSTs. Pillar 2 would ensure that large MNEs pay a minimum level of tax, relying primarily on global anti-base-erosion rules.
While pillar 1 of the OECD agreement is “certainly not a preference from the European side,” said Tang, if it fails to pass, “there’s certainly much pressure to have the DSTs reinstalled or installed.” MEPs from Italy, Spain, and Austria — countries that have implemented DSTs — attended the meetings and shared their countries’ intention to keep their DSTs in place if pillar 1 does not go into effect, he said.
During a May 26 interview for an upcoming episode of the Tax Notes Talk podcast, Johan Langerock, policy adviser for the Greens/European Free Alliance in the EP, said that, “as we [Europeans] understand it, both Democrats and Republicans have a hate of digital services taxes.” Langerock was part of the FISC delegation that visited Washington.
Tang said the tech companies argued that complying with many countries’ DSTs would place a heavy administrative burden on them, which would lead to uncertainty that could be exacerbated by any future changes to individual member states’ DSTs. Tech companies and representatives from Treasury expressed hope for more certainty and clarity when pillar 1 is adopted, he said.
Tech companies did not offer many details about their views on social corporate responsibility or public country-by-country reporting of tax and financial information, said Tang. “They [stuck] to their line and were not very forthcoming in that sense,” he said.
“It’s a bit strange to hear from Google, Meta, and Amazon — big data companies, experts in processing data . . . to hear that they have difficulties in gathering their own data and publishing it,” Langerock said.
Amazon shareholders rejected a first-of-its-kind proposal May 25 that would have required the multinational online retailer to publish a tax transparency report.
Tang also said that U.S. lawmakers and Treasury officials seemed more focused on implementing pillar 2 of the tax plan because pillar 1 suffers from a partisan split in Congress. Sen. Ron Wyden, D-Ore., the Finance Committee chair, was very clear that Democrats would bring pillar 1 forward and get bipartisan support, Tang said.
Wyden also gave MEPs assurances that Senate Democrats would work hard to implement pillar 2 by reforming the global intangible low-taxed income rules, said Langerock.
Speaking to a cluster of reporters on the Hill May 25, Wyden said he thought the meeting with MEPs was positive and constructive and expressed support for moving forward on both pillars as quickly as possible. He declined to comment on nonrefundable tax credits or any other topics discussed.
Other lawmakers had less rosy outlooks. According to Tang, Sen. Mike Crapo, R-Idaho, “didn’t show any enthusiasm” for pillar 1 but said that could change when Congress is under Republican control.
Both Langerock and Tang said U.S. lawmakers and Treasury representatives seemed less focused on pillar 1 because the full technical details of the proposal have not been released. Treasury told the EU delegation that technical negotiations are continuing with other countries in the inclusive framework, especially large jurisdictions India and the EU, said Langerock. Tang said that after coming out of a meeting with Indian inclusive framework representatives, Itai Grinberg, Treasury deputy assistant secretary for multilateral tax, acknowledged that the potential delay in implementing pillar 1 would make it more difficult to pass quickly.
Moving Beyond FATCA?
According to Tang, MEPs were surprised to learn that many U.S. lawmakers did not recognize the extent of inequality between the financial and tax information European authorities share with U.S. authorities and what U.S. authorities share with European counterparts. While the United States requires other countries to share financial account information of U.S. citizens abroad with it for tax purposes under the Foreign Account Tax Compliance Act, it does not share the same information with foreign authorities.
Lawmakers were generally open to seeing more reciprocity in information exchange between the United States and the EU, Tang said. MEPs discussed this and the issue of financial secrecy with Sen. Rick Scott, R-Fla., whose state was named in the Pandora Papers as a destination for hidden wealth using real estate. Scott was receptive to better information exchange reciprocity but “sort of dismissed” potential abuse by shell companies, Tang said.
On the problem of accidental Americans — nationals living abroad with negligible ties to the United States who are subject to FATCA reporting requirements — Langerock said he believed the EP had achieved a small win by raising awareness of the problem, primarily among Republican senators. Also, he said, Treasury said it made provisions in its 2023 green book regarding FATCA, including to make exchange of information with partner countries more reciprocal and expand exchange to more issues.