Grassley on the Tax Challenges of the Digitalization of the Economy
Prepared Remarks by Senator Chuck Grassley of Iowa
Chairman of the Senate Finance Committee
On the Tax Challenges of the Digitalization of the Economy
Thursday, February 7, 2019
Today, I want to express my strong concerns about countries around the world potentially implementing discriminatory tax laws that target U.S.-based multinational companies operating in the high-tech, or digital, industry.
Let me be very clear right from the outset. These countries should immediately cease any unilateral actions that target U.S.-based multinationals and instead focus their energy and efforts on the multilateral solutions that are being developed by the global community at the OECD.
I’ll provide a bit of background for those who haven’t been following this issue closely.
Recently, the European Commission proposed a 3-percent digital services tax on the revenues of multinational companies providing certain digital services to users based in the European Union. The tax would not be on the profits, but the revenues. By its design, this proposal would specifically target U.S.-based multinational companies.
Implementing such a discriminatory proposal would have required the unanimous approval of the EU member states. Fortunately, that has not happened.
However, some of the EU nations see a large pot of money they can extract from U.S.-based multinationals. They’re currently taking unilateral steps to implement new digital tax regimes that are the same as, or similar to, those proposed by the European Commission.
To be clear, these types of taxes are discriminatory. They target U.S.-based multinationals. They will likely result in double taxation. And they will create a new transatlantic trade barrier. These effects will come just as we head into negotiations for a new trade agreement with the EU. This is the exact opposite direction that our transatlantic trade relationship should be going.
Last October, then-Finance Committee Chairman Hatch and Ranking Member Wyden sent a letter to the presidents of the European Council and European Commission. They expressed strong concerns about these indefinite and discriminatory digital services taxes targeting U.S.-based multinational companies.
They called on the EU to abandon the proposal and for member states to delay implementing any similar type of digital services tax. Instead, they argued that the EU member states should refocus their efforts on reaching consensus on a multilateral solution at the OECD.
I concur with their sentiments and echo the concerns they raised.
In fact, I reinforced those concerns in a letter with Ranking Member Wyden that we sent to Treasury Secretary Mnuchin last week. We encouraged the U.S. Treasury Department to stay closely engaged in the OECD negotiations. And we urged them to encourage their counterparts at the OECD to abandon any unilateral actions and work together on a consensus solution.
OECD members for years have recognized the tax challenges surrounding the so-called “digitalization of the economy.” The issue played a significant role in the OECD’s tax base erosion and profit-shifting project, commonly known as BEPS, several years ago. It also was prominent in the 2018 interim report on the tax challenges of the digitalization of the broader economy.
Just last week, the OECD released a document outlining at a very high level the timeline for multilateral consideration of the issues and potential paths forward regarding the tax challenges arising from digitalization.
I look forward to the Treasury Department participating in this very important negotiation.
And I encourage nations around the world to participate and allow this process to play out. The alternative is not acceptable: discriminatory, unilateral actions, double taxation and potentially negative trade implications. No good outcomes for countries that impose the taxes. No good outcomes for the countries whose companies are the subject of the tax—mainly, the United States.
In our letter last week, Ranking Member Wyden and I encouraged Treasury Department officials and their counterparts to reach a consensus on a measured and comprehensive approach to this issue.
We also asked the Treasury Department to keep us informed of the solutions that are being developed and progress being made at the OECD. And we shared this letter with Ambassador Robert Lighthizer, since he is tasked with leading our trade negotiations with the EU. Given that the Finance Committee has jurisdiction over tax and trade matters, my colleagues and I will have views on the U.S. position taken in the OECD negotiations.
We all want to see a good outcome for both U.S.-based multinational companies and the United States tax base. We must avoid international tax chaos where significant double taxation is the norm. This is in the interest of the United States. And I hope other countries around the world will reach the conclusion that it is in their interest as well.
Other countries should not view the participation of the United States in this OECD exercise simply as academic or a delay tactic. On the contrary, the United States has shown that it takes action on multilateral initiatives, like the BEPS project. Limitations on interest deductibility and anti-hybrid rules are just a few examples of BEPS items enacted into U.S. law. And the Treasury Department and the IRS took regulatory action on various other BEPS initiatives.
I think it’s worth reiterating that I am invested in this process and in reaching a viable, long-term, multilateral solution. I look forward to staying in close contact with the Treasury Department as the negotiations progress.
I also intend to bring up in the Finance Committee issues related to this OECD negotiation and the Treasury Department’s positions. And if appropriate, we will look into legislative or other actions to address solutions reached at the OECD, as well as unilateral actions that are taken by other countries.
I yield the floor.
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