Hopes for a global deal to tax firms like Facebook and Google have been significantly scaled back ahead of a meeting later this month involving more than 130 countries, several senior officials told POLITICO.

The growing pessimism about overhauling how the digital economy is taxed comes as tensions mount between France and the United States over Paris' digital tax rules, which overwhelmingly target American tech firms.

Both countries are helping to lead digital tax negotiations at the Organisation for Economic Co-operation and Development (OECD), the Paris-based group of mostly rich Western countries.

Speaking on Tuesday, Bruno Le Maire, France's finance minister, said that he still hoped to reach a digital tax agreement within the OECD over the next two weeks, and that he would meet Steven Mnuchin, the U.S. Treasury secretary, in Davos, Switzerland, later this month to hammer out an agreement.

"We want to try all options to reach an agreement at the OECD in the next 15 days," said Le Maire, who spoke to Mnuchin on Monday about the ongoing dispute.

Two officials said the chances of any agreement being reached before June now looked remote, if not impossible, if Paris and Washington went further down the path of a trade war.

But the political stand-off between the U.S. and France over how to move forward with global digital taxation rules has soured hopes of reaching an initial agreement when more than 130 countries gather for a two-day meeting at the end of January.

Participants now hope to merely agree to continue discussions beyond January on how to proceed with the negotiations, according to the officials, who spoke on the condition of anonymity because they were not authorized to speak publicly.

Two officials said the chances of any agreement being reached before June — when the OECD's digital tax rules were expected to be finalized — now looked remote, if not impossible, if Paris and Washington went further down the path of a trade war.

Under the current OECD proposals, new rules would allow all countries to tax the digital operations of companies worldwide, beyond a certain threshold, and create a minimum level of tax that all firms must pay on their online activities.

Digital tax rhetoric

Doubts about reaching a global agreement on digital tax have been steadily growing.

U.S. officials have become increasingly vocal about the slew of domestic proposals from European countries to impose levies on the digital economy — efforts that have primarily focused on American tech giants like Apple and Amazon.

Alongside France's laws, which include a 3 percent digital services tax for firms with more than €750 million of global revenue, including €25 million in France, Spain, Austria and the United Kingdom have all moved tentatively toward their own digital tax rules. Italy and Austria’s rules came into force on January 1.

Efforts to create a pan-European Union digital tax regime also are back on the agenda under the new European Commission despite pushback from countries like Ireland and Luxembourg that have attracted thousands of international companies to their shores by offering them low corporate tax rates.

In response, Washington said it would slap $2.4 billion of tariffs on French goods, including on the country's winemakers, in retaliation for the digital services tax, and threatened to do the same to other countries that followed suit. Phil Hogan, the European commissioner for trade, told reporters on Tuesday that the 28-country bloc would back Paris in any trade dispute with Washington over the country's digital services tax.

In a letter sent to the OECD last month, Mnuchin, the U.S. Treasury secretary, also questioned the need to overhaul how the digital economy was taxed, while calling on countries to stop imposing their unilateral digital tax rules until a global consensus could be reached.

Amid this transatlantic bickering, officials from the OECD and beyond, including from France and the U.S., have been meeting regularly in recent months in efforts to hammer out a global agreement as part of the organization's efforts to push through global digital tax proposals.

They have mostly sidestepped Mnuchin's opposition to digital taxation by claiming such concerns are mostly about implementing any changes, and not about creating new rules, according to two officials involved in the negotiations.

“This is absolutely challenging. What we’re seeking is a political agreement, then politicians can make the call” — Pascal Saint-Amans, director of the OECD’s Center for Tax Policy and Administration

Some officials who spoke to POLITICO suggested the recent stand-off between France and the U.S. could eventually focus minds about reaching a global deal because of the potential massive global economic impact of a possible transatlantic trade war. Others noted that Paris and Washington were not the only countries disrupting negotiations, with Germany — which expressed concern about plans in 2019 to create an EU-wide digital tax — also dragging its feet on reaching a wide-ranging deal.

But as the political rhetoric between U.S. and French officials has grown more heated, especially since December, several officials said the spat had now overshadowed the day-to-day digital tax negotiations, reduced the hopes of reaching a digital tax agreement and raised the possibility of a trade war over how to tax the likes of Google and Facebook.

An OECD spokesman declined to comment about the potential outcomes of the upcoming tax meeting that will be held on January 29-30.

“This is absolutely challenging,” Pascal Saint-Amans, director of the OECD’s Center for Tax Policy and Administration, told POLITICO in an interview late last year. “What we’re seeking is a political agreement, then politicians can make the call.”

Aaron Lorenzo contributed reporting from Washington.

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