Digital services tax sets ‘dangerous precedent’ says US

The Chancellor’s plans to introduce a 2% digital services tax on large digital platforms, announced in the Budget, have come under fire in the US, with a strongly worded letter from the Chamber of Commerce to the US Treasury demanding the White House takes action to counter a ‘dangerous precedent’

In his letter, US Chamber of Commerce president and CEO Thomas Donohue urges Treasury secretary Steven Mnuchin ‘to redouble efforts to urge the Europeans to address these issues in appropriate multilateral fora'.

Donohue points out that in the absence of an agreed action from the EU, individual countries are actively contemplating adoption of their own measures. He cites Spain’s provision for a digital services tax in a budget package under consideration, and the UK’s intention to introduce such a measure in 2020.

He stated: ‘Our concerns about these measures are straightforward. First, proposing to tax revenues ignores the costs associated with sales. Such a turnover tax dissuades investment and discourages innovation and entrepreneurship.

Second, these measures improperly target large US technology companies. Proponents have not been shy about their intentions in this regard. Targeting specific companies or sectors would set a dangerous precedent.

‘In addition, “digitally enabled services” is not clearly defined in such measures and risks encompassing an even larger pool of companies’.

The letter casts doubt on claims that individual countries are introducing such taxes as a temporary measure, pending international agreement on the most appropriate way of taxing the digital economy.

It concludes: ‘We encourage you and other members of the administration to reiterate US concerns about any such unilateral moves, and urge your European counterparts to collaborate on consensus measures that respond to taxation concerns without punitively targeting American firms in the process.’

Under the digital services tax, announced in the Autumn Budget, large digital platforms will be taxed 2% on the money they make from UK customers. The tax will come into effect in April 2020 and is expected to produce £275m in yearly revenue by the end of the current parliament in 2020-21.

Letter from US Chamber of Commerce president and CEO Thomas Donohue to Treasury secretary Steven Mnuchin is here

Report by Pat Sweet

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