The Trump administration is in talks with 129 other countries on implementing a new standard for taxing digital companies, including Alphabet Inc.'s Google, Facebook Inc. and Amazon.com Inc. — but its heart lies elsewhere in the discussions.
Rather than usher in with allies a new era of tech taxation, the U.S. goal is to fend off foreign taxes aimed at American companies. The strategy: String out the negotiations for as long as possible to delay the pain and hold out for an agreement with softer edges, said people involved with and briefed on the talks at the Organization for Economic Cooperation and Development.
By slow-walking the discussions, U.S. officials hope they can reach a global agreement that amounts to a small-scale tax increase on global companies, but averts a massive tax increase by foreign countries who see U.S. companies as sources of revenue.
"It's in the interest of the U.S. to prevent a proliferation of unilateral digital services taxes," said Jeff VanderWolk, an international tax lawyer at Squire Patton Boggs LLP. "The way to get them to back off is to get them into a multilateral agreement."
Any future pact would likely create a whole new set of rules governing which countries have the right to tax the companies, which corporate profits were taxable, and how to resolve the inevitable disputes that would arise.
Deciding where profits should be taxed is no easy feat in a digital economy. Corporations can have their headquarters in the U.S., intellectual property stored in Ireland, engineers developing some of the algorithms in India and users all over the world.
The U.S. is hoping to harness this complexity and use the power of roadblock, according to lawyers and tax experts who have discussed the project with Treasury Department officials.
Striking a deal could mean that American companies pay more in taxes, but the U.S. could lose out on tax revenue.
Yet the absence of the deal could be even worse. If talks break down, every country is likely to pass its own laws.
So for the U.S., it's a delicate balance of progress and procrastination. U.S. officials need to be involved in the talks to prevent countries including the U.K., France and New Zealand from getting impatient and creating their own tax regimes that are more punitive to U.S. companies. But they want to hold out for the deal that is most favorable to American companies and the U.S.
