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Digital service taxes and reactionary tariffs

For the past few years, there has been an increased momentum into looking at how to best tax the largest global tech companies. As many are headquartered in the US while operating on a global scale, a number of other countries have looked at capitalising on the revenue which comes from their jurisdictions. Joe Pickard, editor of The Accountant, reports.

The OECD published a proposal in October 2019 to advance international negotiations to ensure that large multinational companies pay taxes where they have significant customer-facing activities.

Commenting at the time, OECD secretary-general Angel Gurría said, “We’re making real progress to address the tax challenges arising from digitalisation of the economy, and to continue advancing toward a consensus-based solution to overhaul the rules-based international tax system by 2020 […] Failure to reach agreement by 2020 would greatly increase the risk that countries will act unilaterally, with negative consequences on an already fragile global economy. We must not allow that to happen.”

Despite the OECD’s hope to find a multilateral solution, the French government approved a new tax this summer which means that digital companies will be taxed 3% on sales generated in France, backdated to 1 January 2019.

In response, US President Donald Trump has threatened to retaliate with a possible 100% tariff on certain French goods such as sparkling wines and cheese.

In the UK, the Conservative party manifesto backed the introduction of a digital services tax which would see a 2% tax imposed on tech companies’ revenues generated in the UK.

With the UK due to exit the EU on the 31st January 2020, the government has been looking once more to that ‘special relationship’ with the US in order to establish a new UK-US trade deal.

A large proportion of the British public have expressed concern over the terms of such a deal, chiefly in regards to the possibility that parts of the National Health Service (NHS) could be bought up by the giant US pharmaceutical corporations.

Trump recently said that he did not know where the ‘rumour’ started, that the NHS would be a point of discussion in any future trade talks with the UK, despite having previously said in a press conference that ‘everything is on the table’ in trade talks, including the NHS.

If the Conservatives remain in power following the general election on 12 December and introduce a digital tech tax, it could have wider implications on a future trade deal between the two countries considering how incited Trump has become following France’s movement in this area.

It is likely that the US will have the greater bargaining power in future trade talks with the UK. If the UK government is looking to get the best possible trade deal, it will be interesting to see how much of a priority a digital tech tax will be to this government, if it is likely to cause large reactionary tariffs being on UK goods being exported to the US.

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