Big Tech Levy Will Tax The Special Relationship

The so-called "special relationship" between the UK and USA could come under serious future strain that would make the Sir Kim Darroch note about Trump being "inept" seem like a walk in the park.

The US launched an investigation this week into France's 3% digital services tax, which aims to hit the tech giants with a direct tax, rather than sit idly by while they legally manage to move revenue and profit to lower taxation regions.

Tapping into a comparatively wealthy French customer base and then paying tax in some other far-flung and low taxation base just doesn't quite seem right, does it?

As the Brits would say, it's just not cricket. It's possibly within the rules, if you bend them enough -- but it's just not in the spirit of the game.

If the US investigation suggests that France has unfairly targeted the US tax giants, then the implicit warning is that it could raise tariffs on French products and services. 

The implication for Britain is stark. We're next.

The Government today published a finance bill that is required to bring in the Chancellor's long-awaited 2% Digital Services Tax. It's for exactly the same reason as the French tax.

The FANGs of Facebook, Amazon, Netflix and Google (presumably Apple too?) will be hit with a 2% sales tax, as will any other company selling digital services to the UK consumer.

If the US decides to attempt to raise tariffs against France in retaliation, the implicit threat would be that the UK would be next in line -- special relationship or not.

While the Trump administration runs more on vitriol and lobbying than fact, the point is that the proposed Digital Sales Tax hits any company from any nation that generates more than GBP500m in global revenue and more than GB25m in digital advertising in the UK. 

Here's another fact for you. The US has agreed that the way the big tech companies run their books is bad for the American treasury and stands side by side with the UK in trying to get G20 national and the OECD to tighten up tax rules to prevent this hugely unfair business practice.

The US and the UK are lobbying on the same side and are both fed up with progress. That is why the UK is acting, alongside France, to take the drastic action of taxing the tech giants directly.

One final fact that may be of interest is that the UK's draft legislation for the new direct tax promises it will be abolished the moment the G20 and OECD get their act together and stop profit being funnelled away into low taxation regimes. 

And yet, here we are. It's crucial timing because the UK should be leaving the EU, again, by the end of October.

It's hard to imagine how the US could raise tariffs against France as an individual country when it is one economy within the joint trading bloc of the EU. If it tried, it would be difficult to imagine the US would not face retaliatory action from the EU.

As for the UK being out there on its own, no longer part of the EU? It's pretty easy to imagine that a lone country without another 27 member states by its side could easily be targeted by a rise in American tariffs.

It's also easy to imagine that the tax would be an impediment if the UK was in the middle of trying to negotiate a trade deal with the US, post Brexit. Let's not forget that France does only around half the trade with the US that the UK does.

The greatest irony? Far from "taking back control," Brexit would surely make the UK more vulnerable to a tariff war with the US at the very time the country would be seeking to exploit the "special relationship" to get a free trade deal. 

My prediction? Philip Hammond will be gone before the summer is over, possibly replaced by Sajid Javid (the current Home Secretary).

If the US makes a move on France, the Digital Services Tax will be kicked into some very long grass and talk will turn to international efforts for a concerted, joined-up approach to the problem. 

1 comment about "Big Tech Levy Will Tax The Special Relationship".
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  1. curtis neeley from cn foundation, July 13, 2019 at 7:10 p.m.

    Big Tech should be taxed for their use of the public, common carrier, wire/radio broadcast medium to transmit advertising once this medium is regulated as required by currently ignored U.S. law(s).
    The idea of Big Tech operating HUGE businesses and paying tax is absurd.
    Europe could easily build a firewall to 100% exclude Big Tech.

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