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A group of European countries agreed with the United States on Thursday (21 October) to withdraw their digital taxes. The move by Austria, France, Italy, Spain, and the United Kingdom follows an international tax deal agreed earlier this month that aims to allocate parts of the profits from highly profitable, big corporations to countries in which revenue is generated.
The agreement, communicated on 21 October, is a further step towards resolving a longstanding grievance between US and European countries over how to tax digital behemoths that make a lot of revenue in European countries but do not book the corresponding profits there.
France and other European countries had unilaterally implemented digital taxes in order to access parts of the profits generated in their economies even if they were not booked there.
The US under former president Donald Trump reacted by threatening retaliatory tariffs of 25% on a number of products from these countries. President Joe Biden’s administration held on to this threat to keep leverage over European countries in the negotiations over the OECD tax deal.
On 8 October, 136 countries agreed on a deal, brokered by the Organisation for Economic Cooperation and Development, that allocates 25% of profits above a threshold of 10% of revenue from companies with a turnover of above $20 billion to countries, in which the revenue was generated.
This means that a small portion of profits from highly profitable firms like Google or Apple will be allocated to France, Germany and other states instead of being exclusively taxed in the countries of their headquarters.