Bull: will US/French deal derail UK digital services tax?

George Bull

George Bull, senior tax partner at RSM, asks whether France’s commitment to refund part of its digital services tax to the US tech giants will scupper the UK’s efforts to introduce a 2% digital tax

Several countries are going ahead with plans to introduce digital services taxes on sales by big tech companies in their domestic markets. These taxes are being introduced while the OECD tries to secure agreement for a global framework to tax these companies. Once a global framework has been agreed, the basis of taxing tech companies in each country will be clear and it is expected that the local taxes will then be repealed.

As many US tech giants appear on the list of companies likely to be affected - Alphabet (Google), Amazon, Apple, and Facebook, for example – the debate has taken on a sharp political edge. Political disagreements between the US and those countries which are introducing their own digital services taxes have been exacerbated by OECD delays.

It now seems unlikely that the OECD will be able to announce a public consultation on specific proposals until the end of 2019, with any new tax framework unlikely to take effect until 2021 at the earliest.

Trump/Macron compromise

All of this came to a head at the recent Biarritz meeting of the G7 when, in the face of commercial reprisals threatened by the US, French president Emmanuel Macron agreed with President Donald Trump that, from the date the OECD framework takes force, ‘France will do away with its national tax’ and ‘everything that has already been paid under the French tax system will be reimbursed, as soon as international tax exists on digital services’.

With the French tax already in force and the OECD framework unlikely to be ready for at least two years, questions remain.

The French Ministry of Finance told Le Monde newspaper: ‘The novelty is that France has undertaken to reimburse the companies with the difference between its tax and the future taxation currently under discussion at the international level, the OECD. For example, if this solution comes into force in 2021, France will calculate the amount that Facebook or Google would have paid in 2019 and 2020, and if the result is less than 3% of the turnover required by the French tax, the groups will receive a tax credit’.

UK digital services tax

So where does this leave the UK? With its 2% digital services tax set to come into force in 2020, the UK is certain to come under the same commercial pressure from the US, whether through tariffs or the terms of any new US-UK trade agreement.

If the UK is required to repay the digital services tax to companies, only to the extent that the tax exceeds the amount computed under the as-yet-unagreed OECD framework, the UK Treasury may decide to press on with its plans. However, if it seems likely that any new trade agreement with the US requires that neither country can impose a unilateral digital services tax on companies from the other country, then that will spell the end for the UK’s digital services tax.

Nothing will then happen until the OECD framework comes into force – and that’s at least two years away.

About the author

George Bull is senior tax partner at RSM

George Bull |Tax consultant, RSM

George Bull is a tax consultant and former senior tax partner and head of RSM's Professional Practices Group. He is primarily involv...

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