U.S. Withdraws From Global Digital Tax Talks

WASHINGTON — The Trump administration has suspended fraught international tax negotiations with European countries and warned that it will retaliate if they move forward with plans to impose new taxes on American technology companies like Amazon, Facebook and Google.

The decision, conveyed in a letter from Treasury Secretary Steven Mnuchin to European finance ministers last week, comes as global talks have stalled over how to tax commerce that takes place online, particularly in countries where companies sell goods and services but have no physical presence.

The collapse of negotiations could set off an escalating trade war and saddle multinational corporations with vast new uncertainty over their future tax bills, at a time when the coronavirus has upended supply chains and business models worldwide.

A conflict with Europe appeared inevitable as European officials responded forcefully to the Trump administration’s withdrawal. The French finance minister, Bruno Le Maire, denounced the move as “a provocation,” and the top economic policymaker in Brussels warned that Europe would move to tax American digital giants if no deal was reached with the United States.

“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, adding that he hoped the withdrawal was just a temporary setback. If a global solution isn’t reachable this year, he added, “we will come forward with a new proposal at E.U. level.”

France will also move to tax digital giants this year if the United States doesn’t return to the negotiating table, Mr. Le Maire said. “We were a few inches from an agreement,” he told France Inter radio on Thursday. “What is this way of treating the allies of the United States, by systematically threatening us with sanctions?” he added.

In January, just before the coronavirus swept through Europe, France said it would suspend until the end of 2020 the collection of a digital tax it had planned to impose on Apple, Facebook and other digital giants this year, as part of an effort to resolve the dispute with Washington. With the dispute now flaring again, “there will, indeed, be a taxation of digital giants in 2020 in France,” Mr. Le Maire said.

As the United States and countries in Europe work to contain the pandemic and prop up their economies, a growing number of countries have imposed or proposed taxes on digital activity that would largely apply to American corporations.

The United States has threatened retaliatory tariffs in response and has developed plans to tax French wine, handbags and cookware. President Trump has also threatened to impose tariffs on European imports in response to the taxes.

Industry groups have largely cheered the administration’s stance, but they have also encouraged Mr. Trump to remain engaged in multilateral talks through the Organization for Economic Cooperation and Development.

On Wednesday, Robert E. Lighthizer, the United States trade representative, confirmed that the country was withdrawing from the discussions during a House Ways and Means Committee hearing.

“The secretary made the decision that rather than have them go off on their own he would just say we’re no longer involved in the negotiations,” Mr. Lighthizer said, referring to Mr. Mnuchin.

In the letter, which was obtained by The Financial Times, Mr. Mnuchin described the negotiations as being at an “impasse” and said that they should be put on hold while the countries addressed the public health crisis.

“This is a time when governments around the world should focus their attention on dealing with the economic issues resulting from Covid-19,” Mr. Mnuchin wrote.

“The United States has suggested a pause in the O.E.C.D. talks on international taxation while governments around the world focus on responding to the Covid-19 pandemic and safely reopening their economies,” said Monica Crowley, a Treasury spokeswoman.

Earlier this year, it appeared that the digital tax fight would dominate international economic discussions in 2020.

Several European countries, led by France, have been rolling out digital services taxes, which would fall heavily on American internet companies. Italy, Spain, Austria and Britain have all announced plans to levy digital services taxes, which impose duties on the online activity that takes place in those countries, regardless of whether the company has a physical presence.

Negotiators had established an end-of-year deadline to strike a deal that would set international standards for how and where online activity may be taxed. The talks hit a snag late last year when Mr. Mnuchin told the O.E.C.D. that the United States wanted American companies to essentially have the option to avoid some of the taxes.

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Talks continued this year, but the “safe harbor” approach that the United States had called for continued to be an obstacle as recently as February, when finance ministers last gathered in person at the Group of 20 meeting in Saudi Arabia.

The American business community is divided over the talks. Some multinational companies, including many tech giants, are eager for an agreement that would head off the complications of complying with different digital services taxes in a wide range of countries. Other companies fear the agreement would raise their taxes unexpectedly.

Daniel Bunn, the vice president for global projects at the nonpartisan Tax Foundation, said that “the risk for an economically harmful tax and trade war in 2020 is significant.”

“Even as O.E.C.D. negotiations progressed, more unilateral digital tax measures have been put forward by governments around the world and the U.S. government has made it clear that it will respond to those policies,” Mr. Bunn said. He urged countries to instead work together to promote stability and growth.

Frustration among Trump administration officials about the direction of the negotiations has been growing, raising speculation that the United States will turn to a more aggressive approach.

Representative Lloyd Doggett, Democrat of Texas, pressed Mr. Lighthizer, the Trump administration’s top trade negotiator, on the course of the talks, saying he was concerned that the administration was “about to start another trade war.”

Mr. Lighthizer defended the administration, saying he agreed “completely” with what the United States did at the O.E.C.D.

“The reality was, they all came together and agreed that they’d screw America, and that’s just not something that we’re ever going to be a part of,” he said. “I don’t want tax systems that unfairly treat American companies,” Mr. Lighthizer added.

Reporting was contributed by Alan Rappeport, Ana Swanson and Jim Tankersley from Washington; and Liz Alderman from Paris.

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