Digital services tax will be temporary

The Chancellor has given the April digital services tax for multinationals the go ahead at the World Economic Forum, but only a short-term basis

Sajid Javid was speaking at a panel at the World Economic Forum in Davos which discussed the future of financial markets.

When asked if the UK was going to rethink the introduction of a digital services tax, the Chancellor said: ‘We plan to go ahead with our digital services tax in April. It is a proportionate tax, it is a tax that is deliberately designed as a temporary tax, so it will fall well away once there is an international solution.’

He added: ‘Technological change has been huge and we welcome it, it is great for consumers and great for growth. But everyone agrees that the pace of change has been unprecedented, and therefore there has been a growing disconnect between where customers are based and where the profits are generated.

‘With more traditional businesses, countries came together with treaties on corporation tax and other profits taxes and this also requires an international solution.

‘This is why all the big economies are being led by an OECD discussion to try and come to an international agreement

‘That is what were most interested in and this year could be that year of change when there is a lot of work that has already been done.’

France, Australia, Austria and Poland have already introduced their own equivalent to the proposed digital services tax on a unilateral basis.

The UK’s 2% digital services tax from April 2020 was attacked by US Treasury secretary Steve Mnuchin who warned the UK yesterday that any tax on multinationals like Google and Facebook would result in increased US tariffs on UK imports.

The discussion around digital services tax has already created friction.

At the end of last year, the US warned it may levy 100% trade tariffs on up to $2.4bn (£1.85bn) of French goods, including cheese and champagne, in response to a federal investigation which concluded that France’s digital services tax (DST) discriminated against US companies.

However, this week following a meeting with President Donald Trump, French prime minister Emmanuel Macron tweeted: ‘Great discussion with @realDonaldTrump on digital tax. We will work together on a good agreement to avoid tariff escalation.’

Javid said: ‘I think we should reach an agreement this year so we can get on with it.’

The risk of increased divergence of tax rules for digital giants has raised concerns, particularly in light of US threats to a trade deal which needs to be negotiated post Brexit.

Tim Wach, managing director of Taxand, said: ‘The looming threat of trade wars between the US and the UK over digital tax proposals, evidences just some of the significant problems that result from the individual countries acting on their own and without international consensus.

‘Though labelled ‘temporary’ – before international consensus is reached – these measures move us further away from the certainty and consistency craved by multinational business and necessary for the efficient operation of the international economy.’

 

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