by Mike Godfrey, Washington

03 July 2020

US Trade Representative Robert Lighthizer told a congressional hearing on June 17, 2020, that the US Government has withdrawn from international negotiations on new global tax rules for digital companies at the OECD.

Lighthizer told a hearing of the House of Representatives Ways and Means Committee that the US has decided to pull out of the negotiations due to a lack of progress towards an international agreement on new digital tax rules, the main goal of the OECD’s BEPS Pillar 1 talks. However, the USTR said that the US was still open to a negotiated solution.

Lighthizer’s remarks appear to confirm reports that the US’s decision to pull out of the talks was communicated by Treasury Secretary Steven Mnuchin in a letter to European Union finance ministers on June 12, 2020.

However, Lighthizer confirmed to the committee that the US would continue to participate in negotiations on Pillar 2, which are focusing on a global corporate minimum tax.

Under pillar one of the OECD’s BEPS project, the OECD is reviewing existing rules that divide up among jurisdictions the right to tax the income of multinational enterprises. However, Mnuchin argued in a letter to OECD Secretary General Angel Gurria in December 2019 that the objectives of Pillar 1 could be substantially achieved through a safe harbor regime instead of specific rules for digital companies which tend to discriminate against certain companies from certain countries, particularly the US.

OECD guidelines define a safe harbor as “a provision that applies to a defined category of taxpayers or transactions and that relieves eligible taxpayers from certain obligations otherwise imposed by a country’s general transfer pricing rules.”

The US has also begun an investigation into the legitimacy of certain national digital tax measures and proposals. The investigation, launched on June 2, 2020, is being conducted under Section 301 of the 1974 Trade Act, which gives the USTR broad authority to investigate and respond to a foreign country’s action which may be unfair or discriminatory and negatively affect US commerce.

A notice published in the Federal Register on June 2, 2020, states that the investigations will focus on DSTs adopted or under consideration by Austria, Brazil, the Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey, and the United Kingdom.

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