U.S. Treasury statement regarding digital services taxes imposed by Austria, France, Italy, Spain, United Kingdom
Political compromise reached on a transitional approach to existing “unilateral measures” while implementing Pillar One
Austria, France, Italy, Spain, United Kingdom
The U.S. Treasury Department today announced that Austria, France, Italy, Spain, and the United Kingdom have agreed in issuing a joint statement that (as part of Pillar One) they will withdraw all unilateral measures regarding the imposition of digital services taxes.
As noted in the Treasury release, today’s joint statement describes a political compromise reached among the United States, Austria, France, Italy, Spain, and the United Kingdom, on a transitional approach to existing “unilateral measures” while implementing Pillar One. Accordingly, the governments of Austria, France, Italy, Spain, and the United Kingdom (all countries that have all enacted unilateral measures before October 8, 2021) are not required to withdraw their unilateral measures until Pillar One takes effect.
The statement continues to explain that to the extent that taxes that accrue to Austria, France, Italy, Spain, and the United Kingdom with respect to existing unilateral measures during a defined period after political agreement is reached, and before Pillar One takes effect, exceed an amount equivalent to the tax due under Pillar One in the first full year of Pillar One implementation (as prorated), such excess amount of tax collected will be creditable against the portion of the corporate income tax liability.
As part of this compromise, the United States has agreed to terminate certain proposed trade actions and commits to not impose further trade actions against Austria, France, Italy, Spain, and the United Kingdom with respect to their existing digital services taxes until the end of an interim period.
Today’s Treasury released defines the following terms:
- The “credit amount” is the amount by which taxes, which were accrued during the interim period (and regardless of whether they were actually paid during the interim period) with respect to unilateral measures enacted before October 8, 2021, exceed the interim Pillar One amount.
- The “interim period” is the period beginning on January 1, 2022, and ending on the earlier of the date the Pillar One multilateral convention enters into force or December 31, 2023.
- The “interim Pillar One amount” is the product of (1) the amount of tax that is owed by the taxpayer as a result of Pillar One Amount A during the first tax year that Pillar One is in effect in the relevant country in respect of the taxpayer; and (2) a fraction the numerator of which is the number of days during the interim period and the denominator of which is 365.
- “MNE group” has the meaning provided in the Glossary of the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.
- “Relevant country” is the jurisdiction that has imposed the unilateral measure with respect to which the interim credit is to be provided.
Framework for unilateral measures compromise
The Treasury release reports that with regard to Austria, France, Italy, Spain, and the United Kingdom:
- Each country agrees to provide a credit (“interim credit”) equal to the credit amount. The interim credit is to be applied in the first tax year that a taxpayer that is part of an MNE group is subject to Amount A tax liability after the interim period, and only against corporate income tax liability arising from the new taxing right under Pillar One. In the case of a taxpayer that is not a member of an MNE group that is subject to Amount A tax liability with respect to Pillar One in the first tax year in which Pillar One is in effect in the relevant country, the interim credit is to be determined on the basis of the first year in which Pillar One applies to such taxpayer and will become available at such time, except that interim credits will not be available for an MNE group that first becomes subject to Pillar One more than four years after Pillar One comes into effect in the relevant country. If the interim credit exceeds the liability arising from the new taxing right under Pillar One in a tax year, the excess interim credit amount will be carried forward, credited against tax liability arising from the new taxing right under Pillar One, and commensurately reduced in each subsequent tax year until the entire credit amount has been fully used.
In the case of the United States:
- In recognition of the unilateral measures compromise, the United States will terminate trade actions proposed under Section 301 and commit not to impose further trade actions with respect to the existing digital services taxes imposed by Austria, France, Italy, Spain, or the United Kingdom during the interim period, provided that the country follows through on the agreement described in this joint statement.
The joint statement concludes that the parties will meet regularly to discuss progress implementing Pillar One and any implications that may have for the appropriate application of the agreement.
Read a USTR notice [PDF 230 KB] as scheduled to be published in the Federal Register on November 18, 2021.
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