Spain agrees compromise with US to abolish digital services taxes

The United States has reached an agreement with Spain and other four European nations in a dispute over digital services taxes - commonly known in Spain as the 'Google tax' - that would hit American tech giants.

The US Treasury Department on Thursday announced a compromise that will see Spain, France, Austria, Italy and Britain abolish their national digital services taxes for the foreseable future as soon as the global tax reform agreed this year by 136 countries comes into force.

Washington had threatened the five countries with punitive tariffs after they introduced the digital taxes, but postponed implementing them for several months to find an international solution.

In early October, 136 countries agreed to a global reform of corporate taxes at the Organization for Economic Cooperation and Development (OECD).

The agreement sees the countries set a minimum tax of 15 per cent on major multinational corporations regardless of where they are based.

It marked a major overhaul of the existing rules that have long been criticized as encouraging tax evasion.

The reform is set to come into effect by 2023 at the latest. In the meantime, a transitional rule will apply that credits any additional revenue and new unilateral measures will be prohibited.

Madrid: "A pragmatic solution"

The Madrid government said in a statement that this reform "will facilitate a fairer, more stable and better prepared fiscal framework to meet the needs of the 21st century global economy."

"This Agreement is a pragmatic solution that helps to ensure that the aforementioned countries can focus their collective effort on ensuring that the historic agreement of the OECD/G20 Inclusive Framework on the new multilateral tax regime is successfully implemented, and allows for the end to the commercial measures adopted in response to Taxes on Digital Services, "added the Spanish government.

The US will terminate the trade actions and commits not to impose further trade actions during the transitional period in response to the existing digital services taxes imposed by Austria, France, Italy, Spain and Britain, a joint statement from the six countries reads.

The digital services taxes primarily affect large US corporations like Google and Facebook, which have faced criticism for business models that allow them to pay low taxes in individual markets.

The move drew ire from the US government.