European Union puts on hold digital levy plans in face of US criticism

The European Union has put on hold work on plans for a digital levy for the moment to concentrate on finalizing the historic tax decision endorsed by the Group of 20 nations over the weekend, officials said Monday.

In the face of US criticism, the European Commission said its work on the levy that would hit American technology companies would go on ice to allow for smooth cooperation on the political and technical hurdles that still need to be addressed on the G-20 tax decision before the end of October.

Successfully concluding this will require a final effort, a final push from all parties. And the (EU) Commission is committed to focusing on that effort, EU spokesman Dan Ferrie said. For this reason, we have decided to put on hold our work on a proposal for a digital levy as a new EU resource during this period.

Finance ministers from the G-20 major economies endorsed a global minimum corporate tax of at least 15%, a measure aimed at putting a floor under tax rates and discouraging companies from using low-rate countries as tax havens.

The global minimum proposal faces political and technical hurdles before it would take effect. Details are to be ironed out in coming weeks at the Organization for Economic Cooperation and Development in Paris, followed by a final endorsement by G-20 presidents and prime ministers at an October 30-31 meeting in Rome.

Countries would then need to legislate the rate into their own laws. The idea is for headquarters countries to tax their companies' foreign earnings at home if those earnings go untaxed in low-rate countries. That would remove the reason for using complex accounting schemes to move profits to subsidiaries in low-tax nations, and where the companies may do little or no actual business.

Outside that context, The EU has also tried to focus on companies that make profits in countries where they have no physical presence. That could be through digital advertising or online retail. Countries led by France have started imposing unilateral digital taxes that hit the biggest US tech companies such as Google, Amazon and Facebook.

The US calls those unfair trade practices, and has threatened retaliation through import taxes.

The European Commission's announcement came as US Treasury Secretary Janet Yellen was meeting with Eurozone counterparts and high-level EU officials.