EU set to go it alone on tech tax if there’s no deal with Biden

European Union leaders are poised to affirm their commitment to a unilateral tax on tech giants if they fail to agree on a global framework with partners, including Joe Biden’s U.S. administration, by the middle of this year.

Over a summit later this month, leaders will “stress the need to urgently address the tax challenges arising from the digitalization of the economy to ensure fairness and effectiveness,” according to an early draft of a joint communique seen by Bloomberg. While vowing to work on “a consensus-based solution by mid-2021,” leaders will “confirm readiness to move forward if a global solution is not forthcoming,” according to the draft, which is still subject to change.

Frustrated by the slow progress in international negotiations on rules of taxing profits, several EU countries already implemented or planned levies on the revenue of companies such as Facebook Inc. and Alphabet Inc.’s Google in the jurisdictions where they operate. Those so-called digital services taxes sparked a dispute with former President Donald Trump‘s administration, which lined up retaliatory sanctions.

Past efforts to reach consensus on similar levies have failed in the EU, where unanimity is required among all 27 members states. Some countries have insisted the bloc should first give more time to the global negotiations on tax rules at the Organization for Economic Co-operation and Development. Signs of progress emerged last month when the U.S. dropped a key demand in negotiations, lifting a barrier that raised transatlantic trade tensions and prevented an international deal.

U.S. Concession

In a video summit in February, Treasury Secretary Janet Yellen told her counterparts at a meeting of financial officials from the Group of 20 that the U.S. is no longer insisting on a so-called safe harbor rule that would allow U.S. companies to opt out of new tax rules.

Despite the move by Biden’s administration, there is still some distance to go to get a global deal on how to tax global tech giants. Beyond the issue of safe harbor, the U.S. and Europe have long been at odds over the scope of any new rules and how they should be enforced.

The EU’s executive arm is due to present it’s plans for a digital tax as soon as next month with the proceeds going to the bloc’s budget, including repayments on the jointly backed debt issued to fund the Covid economic recovery plan.