Washington may have fallen out of love with Big Tech. But when it comes to revamping the world’s tax system, the United States backed Silicon Valley against the world.

The U.S. government fended off a largely European push to force the likes of Google, Facebook and Amazon to pay more into national coffers worldwide. Instead of targeting digital — and almost exclusively American — companies, Washington succeeded in convincing countries to agree on a tax regime that requires the world’s largest companies, digital or not, to pay more tax in countries wherever they have local operations.

Those negotiations, overseen by the Organisation for Economic Cooperation and Development (OECD), come to a close Thursday. While talks are ongoing, the U.S. and Silicon Valley are on track to avoid the worst-case scenarios that had initially appeared likely, including national taxes in countries like France and the U.K. that would have solely targeted American tech companies.

The new system, expected to be approved by the Group of 20’s finance ministers on July 9, will also set a global minimum tax rate of roughly 15 percent to stop multinational firms from shopping around for international jurisdictions where they can pay the least amount of tax.

In Washington, the upcoming global tax announcement is already being framed as a win for the U.S. economy. It follows a long-standing strategy, one that has bipartisan support, to oppose other countries’ efforts to pocket more tax revenue from Silicon Valley’s biggest names — revenue that would otherwise go to U.S. coffers.

“Making sure we actually get rid of these discriminatory taxes has an enormous impact on our country, and I have made it clear the Biden administration actually has to get it done,” U.S. Senator Ron Wyden (D-Ore.), who chairs the Senate’s Finance Committee, told POLITICO. 

Big Tech disrupts tax

Under the prospective tax agreement, the largest U.S. tech companies will still have to pay more tax overseas in a complex formula where profits, above a certain threshold, will be divided among countries.

But by expanding the global tax overhaul to encompass the entire economy – and not just the digital world — U.S. policymakers and Silicon Valley sidestepped a charge, led by the European Union, to slap new levies exclusively on the tech giants. Under the new agreement, German carmaker Volkswagen or British bank HSBC will be just as liable to pay up as Google or Facebook.

Many EU leaders believed U.S. tech giants disproportionately benefited during the COVID-19 crisis, as much of everyday life moved online. U.S. tech companies argue it’s unfair to single out the sector as the entire economy becomes more digitized every year. 

“We should do what we can to avoid any arbitrary distinctions,” said Megan Funkhouser, director of tax and trade policy at the Information Technology Industry Council, a trade group that counts Amazon, Google, Microsoft, Twitter and other tech companies as members. 

The culmination of the years-long negotiations in the coming days highlights how the tech sector, which has already upended large parts of the global economy, became a catalyst in disrupting the international tax system, according to tax officials, trade groups and independent analysts. 

“We’re at a point where it’s bigger than tech,” said Sam Rizzo, director of policy at ITI, the trade group, said in reference to the global tax talks. “It’s about what is a sustainable tax policy from a U.S. foreign policy perspective.”

Thanks to the U.S., initial efforts to capture profits from online advertising and other digital services — often parked in low-tax regimes like Ireland and Luxembourg — have now morphed into a comprehensive global tax overhaul whose effects will be felt in almost every industry and capitals worldwide.

“What the U.S. did was to jumpstart the talks,” said William Reinch, a senior adviser to the Center for Strategic and International Studies, a Washington-based think tank, and former Clinton-era official. “These talks will go down to the wire. But if successful, they represent a watershed moment.”

A united front

Silicon Valley is still fighting U.S. policymakers on multiple fronts, including the big tech companies’ role in enabling the spread of election-related misinformation and alleged abuse of market dominance.

But policymakers put those fights aside when it came to tax policy. In recent months, they have been keen to keep their doors open to tech giants, which provided regular updates on how digital services taxes worldwide were affecting them and offered suggestions on how the U.S. can intervene to protect them. 

The detente is because on taxes, U.S. foreign policy and Big Tech’s interests are aligned. 

Washington is eager to hold on to the lion’s share of tax from these extremely profitable companies, which means ensuring other countries don’t dole out their own digital levies. 

“It’s not that they are tech companies, it’s that they are American companies,” said one Democratic aide, who spoke on the condition of anonymity. “It happens to be that there’s a single industry that is very large and successful and important and profitable that is almost exclusively American. It’s hard to think of another industry where the U.S. has such a strong position.”

On tax issues, tech companies and U.S. officials share memos, jump on Zoom calls and debrief each other regularly, according to seven officials, congressional aides, trade body representatives and corporate executives. Many spoke on the condition of anonymity because they were not authorized to speak publicly about the interactions. 

The global digital tax conversations are separate from ongoing discussions about contentious policy topics like content moderation, privacy and antitrust. There’s little, if any, “cross-pollination” among those issues, those people said, adding company executives who handle tax policy often don’t handle other tech issues. 

It helps that in government, tax policy falls under the U.S. Congress’ finance-focused committees, not panels that oversee privacy and Big Tech’s content legal liability protections.

American officials view other countries’ unilateral digital taxes as discriminatory, and have threatened billions of dollars in retaliatory tariffs if the likes of France and Spain don’t back down. Tech executives have been eager to promote that message, warning international policymakers they risk starting a potential transatlantic trade war if they pursue their own domestic taxes.

Sharing intel

The U.S. Treasury has kept the industry up to speed in its ongoing talks, while tech officials have shared details from their conversations with international policymakers, according to those aides, officials and executives who spoke on the condition of anonymity. 

In late 2020, for instance, tech companies alerted Capitol Hill staffers when France started collecting its digital services taxes after promising to postpone the levy while international talks continued. 

“We wouldn’t have known that until the companies said, ‘Hey just so you know, we got a bill from the French government,’” said another Democratic aide, who spoke on the condition of anonymity.

OECD experts and politicians from business-friendly countries like Ireland — home to many of these companies’ international operations — have routinely met with tax experts from Microsoft, Facebook and others over the last two years to discuss the ongoing international negotiations, according to freedom of information requests to the Irish government submitted by POLITICO.

“One of my teams has been actively providing technical inputs to the OECD Secretariat for a good two years now to help them kind of work out how to do this,” Nick Clegg, head of Facebook’s global public policy and communications team, said in reference to the ongoing talks. “You can imagine what our interest is, and obviously I’ve also got a self interest, in having clear non-discriminatory rules, which are evenly applied and easy for us to follow.” 

Washington has been public in its support for the tech sector.

When the Office of the United States Trade Representative (USTR) first began investigating France’s digital services taxes in 2019, eight of the 10 witnesses at its public hearings represented at least one of the top tech companies. Jennifer McCloskey, who participated as ITI’s vice president of policy, subsequently became a senior tax manager for Google in 2020, where she continues to work on the issue. 

Hearings held by President Joe Biden’s USTR on numerous countries’ digital services taxes earlier this year mostly featured representatives of the tech companies, particularly through ACT, a lobby group, which counts Apple as a member.

Despite their political differences, Biden and former President Donald Trump have pursued almost identical digital tax policies, although the new administration dropped proposals from Biden’s predecessor that would have made the pending global tax overhaul merely voluntary for companies worldwide.

Tax all companies

A turning point in the yearslong tax talks came in early April.

The U.S. unveiled a plan to reinvigorate the stuttering negotiations, which had descended into tit-for-tat threats from European capitals over imposing unilateral digital taxes, and from Washington about slapping foreign companies with retaliatory tariffs.

By focusing on the biggest firms — those with revenues of at least $20 billion and profit margins of more than 10 percent — the Biden administration hoped to streamline the global tax overhaul into a more manageable system that could be quickly approved, according to three officials involved in the discussions, who spoke on the condition of anonymity because they were not authorized to speak publicly.

Both sides gave ground.

After France balked that Amazon, whose profit margins are below the 10 percent threshold, may not be included in the new regime, negotiators tweaked the deal so that a company’s profitable business units would be included even if its overall profit margin didn’t make the cut. That allowed the company’s cloud business, Amazon Web Services, to be part of the prospective deal even as the e-commerce giant’s overall profit margin hovered under 7 percent. 

The United Kingdom fought hard to keep its domestic financial services sector, which competes with that of New York, out of the pact. But U.S. officials rejected such a carve-out, arguing that if the U.S. tech companies were included, so too should other countries’ high-profile industries.

Negotiators are still finalizing the tax deal, expected to be announced Thursday, and details may still change, according to the officials close to the ongoing talks. 

Yet as the hours count down to a likely agreement, it is Washington and Silicon Valley, not other national capitals, that have the most to rejoice.

Some U.S. tech giants will be part of the overall tax revamp. But other countries’ industrial champions will also have to pay more — a recognition that to persuade the U.S. to sign on to the global deal, mostly-European policymakers had to give up their ambition to target Big Tech with new digital levies.

“If anybody has integrity. I think they’re going to say all companies are in for whatever criteria we finally adopt and let the chips fall where they may,” said Peter Barnes, a lawyer at the tax firm Caplin and Drysdale who was previously a senior international tax counsel for General Electric. “That’s the only way a deal is going to last.”

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