US Treasury Secretary Janet Yellen told G20 finance ministers that Washington will abandon a contentious part of its proposal to reform global digital tax rules that were the main obstacle to an agreement.
The move could unlock long-halted multilateral negotiations at the OECD, which struggled to make progress after the Trump administration first insisted on the “safe haven” measure in late 2019.
The provision would have allowed technology companies to comply with any agreement voluntarily.
On Friday, Yellen said at a meeting of G20 finance ministers that the United States “is no longer advocating the implementation of a safe haven,” an American Treasury official told the Financial Times.
The United States “will work hard to address the two pillars of the OECD project, the fiscal challenges of digitalization and a robust global minimum tax,” said the official.
Italian Finance Minister Daniele Franco, who co-chaired the meeting, said at a news conference later that the G20 intended to reach a solution by “mid-2021”.
“It is necessary to reform the current system; it is an urgent task in the face of the challenges of globalization and digitalization of the economy, ”he said.
Another official close to the international tax negotiations said that the US “wants an agreement on the two pillars [of the proposals] in July. . . the next few weeks will be critical, but the dynamic has never been so positive ”.
Yellen’s break with the Trump administration’s stance on digital tax came a day after she also abandoned Washington’s objections to new financial support for low-income countries through an allocation of special drawing rights (SDRs), the reserve currency of the IMF.
“An allocation of new special drawing rights in the IMF could increase liquidity for low-income countries to facilitate their much-needed health and economic recovery efforts,” said Yellen in a letter to the G20 finance ministers and central bank presidents. On thursday. “We are looking forward to discussing the potential modalities for implementing SDRs [with other G20 nations]. “
The last time the IMF allocated a new batch of DES was in 2009, during the global financial crisis.
Support for financial assistance is widespread among G20 countries, so the Washington measure could pave the way for up to $ 500 billion in support to be injected into the global economy. However, the detail has not yet been defined; the US wants DES allocations from advanced economies to be passed on to low-income countries in greatest need of financial assistance.
Kristalina Georgieva, the IMF’s managing director, said on Friday that she was “very encouraged by the growing support” for a new SDR allocation “to increase the reserves of all members in a transparent and accountable manner” and to offer “a mechanism additional to enable our wealthiest members to support low-income countries by re-lending part of their SDRs. ”
“We are ready to present our members with a robust assessment of long-term reserve needs and implementation modalities,” said Georgieva.
The bleak prospects for a multilateral digital tax deal during the Trump administration have led several countries, mainly in Europe, to introduce or consider their own taxes on large technology companies, in an attempt to prevent them from paying little or no tax on their sales.
Washington opposed these fiscal measures as unilateral and discriminatory against Silicon Valley, making the dispute one of the biggest sources of transatlantic economic and trade tensions.
However, despite renewed hopes for an agreement, much remains to be done before a new global regime can be introduced. Not only will an agreement have to be finalized, but in the case of the United States, it will have to be approved by Congress, where changes in tax policy can be highly contentious.