Yellen Says EU Delay on Digital Tax Helps Global Corporate Tax Deal

BRUSSELS—Treasury Secretary

Janet Yellen

thanked European officials for delaying work on a controversial tax on digital services, saying coming negotiations on a proposed global minimum corporate tax should clarify what levies might be allowed.

European Union officials on Monday said they would delay until October plans for their proposed digital-services tax, which Ms. Yellen had said risked undermining the deal reached recently by leaders of the Group of 20 large economies to set a world-wide minimum corporate tax of 15%.

“I think it gives us time to clarify the international agreement that we all are supportive of,” Ms. Yellen said after meetings with EU officials and national leaders from some EU countries. “Exactly what is allowable and what is not allowable remains unclear at this point,” she said, adding there will be a lot of negotiations on such issues before October, when participants aim to complete the deal.

Ms. Yellen and other U.S. officials have said the EU’s digital tax, if pursued, could undermine prospects for the global tax deal just as President Biden faces the challenge of getting approval from Congress.

“This is a delicate time in the U.S. negotiations and I think it avoids throwing something into the negotiations that would be unclear and could complicate our progress,” Ms. Yellen said.

The EU only put its proposal on hold through October and didn’t kill the idea, which focuses primarily on taxing the revenues of digital companies where they are generated, rather than just where the companies are based. If implemented, it could force internet giants to pay far more tax in EU countries.

Ms. Yellen said that the G-20 proposal, completed at a meeting in Venice over the weekend, “rules out digital service taxes of the type the U.S. has found unfair and targeted against U.S. companies.”

The EU’s delay lets negotiators “consider these issues more carefully and to clarify what measures are permissible,” she said.

Ms. Yellen said she had spoken directly with senior officials from Ireland and Estonia, two of three EU members alongside Hungary that have effective corporate tax rates below 15% and balked at the G-20 proposal.

“This is an agreement that is historic and is very much in the interest of all countries,” Ms. Yellen said. “Obviously it involves compromises. My sense is that those countries want to find a way to get to Yes.”

Ms. Yellen was more open to another controversial EU proposal, for a levy on imported goods produced in less environmentally friendly ways than those in the EU. The proposal, called a carbon border adjustment mechanism and which the EU plans to outline tomorrow as part of a broader environmental plan, could effectively tax imports that contribute heavily to greenhouse-gas emissions.

The carbon levy aims to stop what is known as “carbon leakage,” where buyers seek out less-expensive products that can harm the environment.

“A carbon border adjustment serves that role, to address that issue of carbon leakage. So, to my mind, there is a clear rationale for wanting to have it,” Ms. Yellen said.

Ms. Yellen said that the Biden administration is advancing its own environmental agenda for the U.S. and she expressed hope that arrangements could be made between the two economies to avoid penalizing each other if they use different methods.

“We really have work to do to think about how these regimes should be interacting,” Ms. Yellen said. “There’s broad recognition this is something we need to work on.”

Write to Daniel Michaels at [email protected]

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