The Trump administration has withdrawn from international digital tax negotiations, shocking European leaders and raising the possibility of a trade war.
The U.S. threatened to retaliate against countries that attempt to impose such taxes.
Treasury Secretary Steven Mnuchin informed European finance ministers last week, in a letter obtained by the Financial Times, that the negotiations at the Organization for Economic Cooperation and Development were at an “impasse” and said they should be put on hold while the countries addressed the coronavirus pandemic.
“Attempting to rush such difficult negotiations is a distraction from far more important matters,” Mnuchin said in the June 12 letter to four European finance ministers. “This is a time when governments around the world should focus their attention on dealing with the economic issues resulting from Covid-19.”
He said the U.S. was unable to agree even on an interim basis on changes to global taxation law that would affect leading U.S. digital companies. The U.S. wants to resume the talks later this year, Mnuchin said.
“The United States remains opposed to digital services taxes and similar unilateral measures,” Mnuchin said. “As we have repeatedly said, if countries choose to collect or adopt such taxes, the United States will respond with appropriate commensurate measures.”
“I very much regret the U.S. move to put the brakes on international talks on taxation of the digital economy,” said Paolo Gentiloni, the European economic commissioner, according to The New York Times.
The French finance minister, Bruno Le Maire, said the U.S. decision was “a provocation."
“We were a few inches from an agreement,” he said on France Inter radio, the Times reported. “What is this way of treating the allies of the United States, by systematically threatening us with sanctions?”
Several European countries were looking tax digital companies above a certain revenue threshold, which would have an impact mainly on U.S. tech firms, such as Amazon (AMZN) - Get Report and Google parent Alphabet (GOOGL) - Get Report.