One of the persisting themes of our coverage over the years has been the decline of multilateralism. Multilateralism relies on three diminishing sources of political support: consensus among policy makers, trust among political leaders and quiet assent by voters.

FAZ reports this morning that the US government is threatening to pull out of yet another area the G20 had wanted to develop: a fair tax system for multinational companies. Olaf Scholz said a few months ago that he could envisage a global deal by next year. But yesterday it became known that Steven Mnuchin has written a letter to the OECD to warn that the French unilateral digital taxes would endanger the whole concept. This is part of a boarder US campaign to force European countries, and France especially, into line. After the threat of trade sanctions on French luxury goods, the US is now threatening to sabotage the OECD-led effort to find common ground on global taxation in a digital world. 

It is clear from this letter that the US has shifted its position in a fundamental way. The OECD proposals envisaged a two-pillar system. The first would include a mechanism to share the global profits of a company across those countries where its customers are located. Existing multinational tax rules work more-or-less well for traditional manufacturers, on the basis of market-based transfer pricing rules, but not nearly so well for purely digital companies. The second pillar, supported by the US, foresees minimal taxation to stop companies from transferring patents and registered trademarks into tax havens.

Mnuchin said in his letter that this proposed pillar would break with all existing principles of international taxation. He writes that there would be no chance of Congress agreeing to the envisaged compromise, which is directed specifically at the likes of Google, Facebook, Amazon or Apple. 

One under-reported aspect of this week’s Nato summit was Donald Trump’s assertion that he wanted to have the sole right to tax US digital companies. This statement clearly runs counter to the reform process. The OECD says that more than 30 countries have already introduced national digital taxes, and warns that the absence of an international agreement would spur global trade and tax wars.

In view of the above, it was perhaps not such a great idea for European leaders to use the Nato summit to show their contempt for Trump, while at the same time not showing any progress towards a joint policy that would allow the EU to become more independent.