Forget The Tough Talk -- UK Will Have To Ditch The Tech Tax

France has bottled it, and the UK will almost certainly follow, despite Chancellor Sajid David saying the tech tax remains. That has to be the big question the digital marketing industry will be asking as Davos draws to an end. 

Midweek, President Macron was warned of retaliatory tariffs on French products -- champagne and cheese were apparently mentioned -- if France pressed ahead with a direct tax on digital sales. He had previously stood by his guns for a few months, supposedly encouraged by the EU saying it would stand by France in a looming trade war. 

In the end, as Sky News summed up yesterday, he blinked. A private chat at Davos was all it took to make him realise Trump meant what he said. Talk turned to the tax being delayed until the end of the year.

Delayed, one can presume, is diplomatic speak for cancelled. There is still some wiggle room there for the French to reintroduce the tax, if Trump does not win the election, but it's unlikely to see the light of day now.

Which brings us to the thorny issue of the UK introducing its own 2% levy in April. Regular readers will know MAD London has been predicting that the tax will never actually be implemented.

It is almost impossible to imagine that Boris will go to Washington to seek a trade deal with the US and get any kind of favourable reception while the threat of a 2% Digital Services Tax still looms large. And yet, there was Sajid David yesterday saying the tax remains in place, albeit relegated to a "temporary" measure.

Surely this is just positioning and we can expect a decision on the introduction of the tax to be put off until the trade talks are underway.

Surely, one side would never give up a trump card -- pardon the pun -- without expecting something in return, or at least for it to be seen as a gesture of goodwill to unblock issues surrounding another area of trade. 

It isn't just the UK in a tricky spot. Italy is due to introduce a tech tax within a month, and Austria has also proposed one.

The levies make sense, considering how adept the tech titans are at legally moving money to low taxation havens after sucking up revenue from markets they continue to dominate in the EU.

The thing is, France has blinked and it's not even relying on a US trade deal to get it through a rough patch after leaving the EU. Neither is Italy nor Austria. The UK is, and that's the only factor in play here.

As Captain Jack Sparrow quipped in "Pirates of the Caribbean," there's ultimately one thing that matters and it's not what you want to do, but what you can do.

The UK wants the tech giants to refrain from dominating its markets, hoovering up millions of dollars worth of trade that is moved around until they have what looks like a very low tax bill being paid to HMRC.

The thing is, it just can't afford to follow through on this. Macron knows he can't, and appears to be admitting as much. Boris surely has to be following suit very soon.

The UK will be officially out of the EU from February 1st, which gives official trade talks just under six weeks until the Chancellor gives his budget on March 11th. That's six weeks for the UK and the US to talk about some very general rules of engagement before the nitty gritty gets dealt with.

Do not be surprised if the Chancellor backs down and announces a delay to the Digital Services Tax in his speech. Don't be the slightest bit surprised that the explanation will be waiting for the OECD to devise new rules to tackle the problem of overseas companies funnelling revenue so it is taxed in low tax havens. It has already intervened, asking the UK to wait for its new rules to come to the rescue. In so doing, they have potentially offered the UK a face-saving life line. 

The Digital Services Tax is something France couldn't afford to risk, so just imagine what a tight spot it puts Boris in as he looks for Washington to give a post Brexit boost in the form of a lucrative trade deal.

For the moment, it remains in place.

We'll see the lay of the land once the Chancellor has delivered his budget in just under six weeks time. Few will be surprised if the tax is postponed until we get a better idea of what the OECD is working on.

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