US Treasury Secretary Janet Yellen has told G20 finance ministers that Washington will abandon a controversial part of its proposal to reform global digital tax rules, which was the main obstacle to an agreement.
The move could ease multilateral negotiations at the OECD, which has struggled to make progress after the Trump administration only insisted late on the safe haven measure in 2019.
The provision would enable technology companies to comply with any agreement on a voluntary basis.
Yellen said at a meeting of G20 finance ministers on Friday that the US “no longer advocates for the implementation of safe havens”, a US Treasury official told the Financial Times.
The official said the US was “making a strong effort to address both the pillars of the OECD project, the tax challenges of digitalisation and a robust global minimum tax”.
The Italian Minister of Finance, Daniele Franco, who chaired the meeting, then said at a press conference that the G20 wants to reach a solution by mid-2021.
‘The current system needs to be reformed; it has become an urgent task because we are facing the challenges of globalization and digitalisation of the economy, ‘he said.
Another official close to the international tax talks said the US wants an agreement on both pillars [of the proposals] against July. . . the next few weeks will be critical, but the dynamics have never been so positive ”.
Yellen’s break with the Trump administration over digital taxes came a day after she also dropped Washington’s objections to new financial aid to low-income countries through an allocation of special withdrawal rights (SDRs), the IMF’s reserve currency.
“A grant of new special drawing rights to the IMF could improve liquidity for low-income countries to facilitate their much-needed efforts for health and economic recovery,” Yellen said in a letter to G20 finance ministers and governors on Thursday. of the central bank said. ‘We look forward to discussing possible modalities for the implementation of SDRs [with other G20 nations]. ”
The last time the IMF allocated a new amount of SDRs was in 2009 during the global financial crisis.
Support for financial aid is widespread among G20 countries, so Washington’s move could pave the way for as much as $ 500 billion in aid to be pumped into the world economy. The detail, however, has not yet been decided; the US wants SDR allocations for advanced economies to be transferred to low-income countries that are in greater 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 award “to promote the reserves of all members in a transparent and accountable manner” and offers a additional mechanism to enable our richer members to support low-income countries through a portion of their SDRs lent. ‘
“We are prepared to submit a thorough assessment of the reserve needs and implementation methods to our membership,” Georgieva said.
The bleak prospects for a multilateral agreement on digital taxation during the Trump administration have led a number of countries, mainly in Europe, to impose or consider imposing their own levies on large technology companies, to avoid having little or no tax on their sales.
Washington has objected to the tax measures being unilateral and discriminatory against Silicon Valley, which has turned the dispute into one of the biggest sources of transatlantic economic and trade tensions.
Despite the new hope for an agreement, there is still much 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 US, it will have to be approved by Congress, where tax policy changes can be very controversial.