Tech Tax Is Back On, Sort Of

Well this is kind of awkward, but then again, it may not be. You see, we just don't really know for sure, but it would appear yesterday's blog saying the Tech Tax was gone was, to be blunt, not correct.

The headlines today suggest the Digital Services Tax is being introduced in April after all. Whether or not it will ever lead to a tech giant paying any tax is still in question, however.

Regular readers will know I've always presumed this levy would be dropped in the UK, as it has been in France. The UK version targets digital companies offering social media and search services with online revenues above GBP25m in the UK and above GBP500m globally. As you can imagine, the US tech giants feel that it has been frame to hit them while allowing European tech giants, such as Spotify, to duck the new tax.

The crazy thing is that the Chancellor didn't even mention it yesterday in the Budget and there was no detail of it anywhere to be had by searching away on, ironically, one of the tech giants that would be hit by the levy. 

Instead, it has emerged today that the silence did not mean that it has been dropped, but that it would still go ahead. It makes Boris and the Chancellor, Rishi Sunak, look a little like the kids who are keeping quiet and hoping their parents wouldn't notice it's past bedtime. 

When France tried to introduce its equivalent of the tax, the threat of retaliatory tariffs from President Trump prompted a postponement. The country is now waiting to see what new rules for taxing the tech giants more fairly can be devised by the OECD. It's more of a truce than a cessation of hostilities.

That is what makes the UK decision so much more baffling. Surely Boris could have Rishi Sunak announce a similar move, a postponement of a year, to see what the OECD can come up with?

However, dig deeper and a tactic could be emerging here and it was brought to my attention by Dan Neidle, head of tax at Clifford Chance. His observation is potentially very astute and runs like this.

The Government knows Trump is threatening the UK with retaliatory tariffs if it goes ahead with the Digital Services Tax, but could be using it as leverage in the upcoming trade talks.

Here's the crucial part. The new tax comes into force next month but payments of it will not be due for up to another year. That means the Chancellor could disallow the tax. He could force the tech giants to put aside 2% and then at the last moment drop the tax and be seen to be giving back the GBP500m it is expected to raise.

So it's still a very cloudy picture. The tax would appear to be back on, but could be "disallowed" before it is ever charged. 

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