LONDON — Tensions over a digital tax may trigger a trade war that could potentially slash global GDP (gross domestic product) by over 1% every year, the OECD warned Monday.
The United States, France, the U.K. and Ireland — just to name a few nations involved in a long-running dispute — have fought over how to adapt the tax system to the new digital economy, where companies such as Apple, Facebook and Amazon have flourished. The debate has received even more attention in the wake of the coronavirus pandemic as tech giants have profited from stay-at-home orders.
The Organization for Economic Cooperation and Development (OECD) has warned that countries need to come to an agreement or risk damaging the global economy further.
"The absence of a consensus-based solution … could lead to a proliferation of unilateral digital services taxes and an increase in damaging tax and trade disputes, which would undermine tax certainty and investment," the Paris-based institution said Monday in a statement.
"Under a worst-case scenario — a global trade war triggered by unilateral digital services taxes worldwide — the failure to reach agreement could reduce global GDP by more than 1% annually," the OECD added.
The OECD had been tasked with bringing nations together over a common international approach to digital taxation. This job became harder as the pandemic prevented face-to-face meetings, but it was also set back by the U.S. decision to pull out of the negotiations in June.
As a result, the OECD confirmed on Monday that there will not be an agreement this year — as per initially scheduled. Instead, the organization is now aiming to reach a deal by "mid-2021."
The European Commission, the EU's executive arm, has said that it will look for an EU-wide digital tax if there is no deal at the OECD by the end of 2020.
In addition, countries such as France, the U.K. and Spain are expected to start collecting the first receipts of their national digital taxes in the first part of 2021. The latest comment from the OECD raises questions about what these governments will do in this context.
In the meantime, the OECD has presented a new set of technical principles that if implemented could bring in $100 billion in additional tax revenues worldwide.
"It is imperative that we take this work across the finish line. Failure would risk tax wars turning into trade wars at a time when the global economy is already suffering enormously," Angel Gurría, the OECD's secretary-general, said on Monday.
The global economy is expected to contract by 4.5% this year, according to forecasts made by the OECD in September.