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The U.S. gets what it wants on digital taxes—almost

October 22, 2021, 10:01 AM UTC

The United States has been fuming for years about countries—particularly those in Europe—introducing “digital services taxes” on Big Tech companies that just happen to be American. These taxes were generally designed to fill in until there was a global agreement on taxing multinationals. That deal is nearly done and dusted, so are the existing digital taxes being ditched?

Yes—but not just yet.

While the U.S. had hoped countries such as the U.K. and Italy would immediately drop their digital taxes on Oct. 8, the day most of the world agreed on the new global tax deal, the countries had different ideas, with Italy saying it would only remove its digital services tax once the deal is implemented in 2023.

It is this latter view that won out. On Thursday, the U.S. announced a “political compromise” with Austria, France, Italy, Spain, and the U.K., in which those countries will retain their digital taxes until the deal comes into force—in particular, Pillar One of the deal, which allows countries to claim more tax from large multinationals for services provided on their soil. (The agreement’s other main part, known as Pillar Two, sets a worldwide 15% corporate tax floor.)

Here’s the compromise: In the meantime, if those digital taxes raise more money than the countries would get by instituting Pillar One of the global deal, the multinationals can claim the excess against future tax payments. The unilateral digital taxes are generally around 2% of the companies’ locally generated revenues.

Crucially, as part of the political agreement, the U.S. is dropping its threat to hit the countries with tariffs over their digital services taxes. It had announced those 25% tariffs in June, then immediately suspended them while the global tax talks progressed.

It should be noted that this agreement does not include Turkey and India, which remain targets of suspended U.S. tariffs over their digital taxes. India’s is the typical 2%, but the Turkish tax is particularly high, at 7.5%.

In a statement, the British government hailed a “pragmatic solution” that “carefully balances the perspectives of several countries.” The tech industry gave the agreement a slightly more grudging welcome.

“While the most appropriate action would be an immediate withdrawal of these discriminatory unilateral measures in exchange for terminating the trade investigations [that would have led to the tariffs’ imposition], we stand ready to work with policymakers to see the swift implementation of the global framework, and ensure that no new discriminatory measures are introduced in the future,” said Matt Schruers, the president of the Computer & Communications Industry Association (CCIA), in a statement.

Fortune has repeatedly asked the European Commission if its proposal for an EU-wide digital services tax, which it suspended a few months ago at the time of the preliminary agreement over the global tax deal, is now definitively dead. However, no response has been forthcoming.

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