John G. Murphy John G. Murphy
Senior Vice President, Head of International, U.S. Chamber of Commerce
Caroline L. Harris
Former Vice President, Tax Policy & Economic Development, Former Chief Tax Policy Counsel


March 05, 2019


Around the globe, governments are suddenly debating tax proposals framed around the rapidly digitalizing world economy.

In January, Senate Finance Committee Chairman Charles Grassley (R-IA) and Ranking Member Ron Wyden (D-OR) wrote to Treasury Secretary Steven Mnuchin on the issue. They urged the administration to make clear its opposition to unilateral adoption of digital services taxes. In Paris last week, Secretary Mnuchin conveyed that message with clarity and force.

And yet here we are: On March 6, the French cabinet began consideration of a proposal to impose a 3% tax on revenues from “digital activities,” according to CNBC.

This unilateral approach is counterproductive.

It is obvious that the internet has made the cross-border provision of digital services increasingly practical and inexpensive, and conversations about reforms to modernize the international tax system to adapt to the digitalization of the global economy make sense. To that end, an important effort is underway at the OECD and this should be the focal point of efforts to address these complex issues.

Unilateral actions run counter to what OECD members are trying to achieve. They threaten global economic interests, including trade; erode trust; and undermine prospects for international agreement. Country-specific mechanisms will cause fragmentation, translating into increased burdens for taxpayers and tax administrators alike.

As the OECD and others move forward to develop various design options for addressing challenges from digitalization for businesses of all sizes and sectors, on behalf of the U.S. business community, the U.S. Chamber believes the following principles should guide these efforts:

  • The focus of these efforts should be on specific problems of tax avoidance and tax base erosion through abusive practices.
  • Tax legislation should ensure industry-specific neutrality and avoid special tax benefits or penalties targeted to one industry versus another. A fundamental tenet of pro-growth tax policy is that the marketplace, not the tax system, should allocate capital and resources. Principles of non-discrimination and national treatment must be rigorously respected.
  • Direct taxes should be levied on net income, not revenues. Proposals to tax revenues improperly ignore the costs associated with sales and would raise costs to consumers.
  • All tax-related legislation, including any OECD recommendations, should provide simple, predictable, and easy to understand tax rules to improve compliance and reduce the cost of tax administration. These measures should promote certainty through effective dispute resolution mechanisms, including mandatory binding arbitration, and appropriate safe harbors applicable to both businesses and governments.
  • Any changes to tax law should include realistic transition rules to provide adequate time for implementation and help minimize economic hardships businesses may face during transition to changes in tax systems.
  • All parties must uphold their international commitments, including tax treaty obligations that guard against double taxation and the nondiscrimination and national treatment obligations included in trade agreements. Changes to international tax rules must be accompanied by changes to tax and trade agreements to avoid double taxation.

To be clear, France is not alone in forging a unilateral path. Italy, Spain, Austria, the United Kingdom and Chile are considering similar measures. We urge them set aside what looks like an easy revenue grab and focus instead on forging an OECD-wide consensus.

Tax policy and digital commerce issues are each complex in their own right. Finding ways to address the interplay of these issues in a fair, balanced, transparent and effective way must be left to multilateral fora.

Update, March 6: The French government has proposed a 3% tax on digital activities.

About the authors

John G. Murphy

John G. Murphy

John Murphy directs the U.S. Chamber’s advocacy relating to international trade and investment policy and regularly represents the Chamber before Congress, the administration, foreign governments, and the World Trade Organization.

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Caroline L. Harris

Caroline Harris is former vice president, tax policy and economic development, and chief tax policy counsel at the U.S. Chamber of Commerce.