U.S. floats 'safe harbor' proposal in global taxation reform drive

By Andrea Shalal and Leigh Thomas

WASHINGTON/PARIS (Reuters) - U.S. Treasury Secretary Steven Mnuchin raised serious questions about OECD international tax reform proposals in a letter made public Wednesday, jarring international officials by floating the idea of a safe harbor regime.

Angel Gurria, president of the Organization for Economic Cooperation and Development, said the U.S. proposal came out of nowhere after months of in-depth consultations and could set back efforts to meet previously agreed tight deadlines.

The OECD is in the middle of the biggest rewrite of international tax rules dating from the 1920s that proposes giving governments more power to tax big multinationals doing business in their countries. Tax experts say the safe harbor proposal could allow U.S. companies to opt-out of whatever gets agreed internationally.

Many governments consider the existing rules to be woefully ill-adapted for the digital age, allowing internet giants like Google owner Alphabet Inc (NASDAQ: GOOGL) and Facebook Inc (NASDAQ: FB) to book revenues in low-tax countries like Ireland regardless where the paying customer lives.

Gurria invited Mnuchin to Paris for talks "ideally before Christmas" which would include French Finance Minister Bruno Le Maire. Mnuchin and Le Maire spoke by telephone on Wednesday, according to sources familiar with the matter.

The imbroglio threatened to deepen tensions between Washington and Europe over a U.S. threat to impose 100% tariffs on a raft of French products, including Champagne, cheese and handbags, over France's 3% digital services tax.

France, Italy, Austria, Britain and other countries have proposed taxes on digital services that Washington says will unfairly burden U.S. companies.

In a letter to Gurria dated Tuesday, Mnuchin said Washington supported the OECD's drive to enact tax reforms, but worried that changing the rules as proposed could affect "longstanding pillars of the international tax system."

He said the United States had "serious concerns" about any moves to abandon certain current taxation structures such as arm's-length transfer pricing and taxable nexus standards, and said they could be addressed by creating a safe-harbor regime.

The U.S. proposal caught OECD officials by surprise. In a letter to Mnuchin, Gurria said it was the first time such an idea had surfaced despite lengthy consultations.

"We raise this concern, as it may impact the ability of the 135 countries that are now participating in this process, to move forward within the tight deadlines we established collectively," he said.

(Reporting by David Lawder and Andrea Shalal in Washington and Leigh Thomas in Paris; Editing by Jonathan Oatis and Lisa Shumaker)

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