The world is heading for a digital tax war

The ques­tion of how to stop big tech firms slash­ing bil­lions off their tax bills is threat­en­ing to es­ca­late into a full-blown tax war. There are few easy ways for­ward, de­spite the fact that some form of de­tente be­tween two of the po­ten­tial bel­liger­ents, Amer­ica and France, ap­peared to have been reached yes­ter­day.

In the face of US pres­sure, French fi­nance min­is­ter Bruno Le Maire agreed to hold fire on France’s tax on large tech com­pany rev­enues which was aimed squarely at the likes of Google and Ama­zon.

Af­ter Washington threat­ened re­tal­ia­tory tar­iffs the two sides agreed to sup­port in­ter­na­tional ef­forts co­or­di­nated by the Or­gan­i­sa­tion for Eco­nomic Co-op­er­a­tion and Development (OECD), in­stead of go­ing down the uni­lat­eral route. But Trump’s ad­min­is­tra­tion has been do­ing its best to hob­ble that process for some time.

Are tech gi­ants taxed pro­por­tion­ately ;

The OECD is seek­ing what’s known as a uni­tary ap­proach that would see tech gi­ants taxed in the coun­tries where they ac­tu­ally gen­er­ate rev­enues, rather than squir­relling prof­its away in Ber­muda or Ire­land. Broadly, this is what al­most ev­ery­one agrees to be the sen­si­ble ap­proach, end­ing the ob­vi­ous ab­sur­dity and un­fair­ness of the cur­rent sys­tem. But reach­ing a global agree­ment on a for­mula for how this will work in prac­tice ap­pears a long way off.

The US, whose com­pa­nies ben­e­fit most from the sta­tus quo, is say­ing that any uni­tary agree­ment reached by the OECD should be vol­un­tary, which would make it es­sen­tially use­less. A vol­un­tary tax is no tax at all. It is push­ing in­stead for a re­liance on “pil­lar two” of the ne­go­ti­a­tions, which is a fall-back op­tion man­dat­ing a min­i­mum global tax rate on cor­po­rate prof­its of 10.5 per cent (the low­est pos­si­ble rate avail­able in the US).

But this is far from a sat­is­fac­tory so­lu­tion. The rate is lower than that avail­able in Ire­land for ex­am­ple and would hardly re­pair the hole blown in na­tional ex­che­quers by tech firms ac­count­ing ruses.

You can read another interesting analysis here: Johnson v Trump: Britain heads for clashes with US on three fronts

What peo­ple close to the ne­go­ti­a­tions sug­gest?

Peo­ple close to the ne­go­ti­a­tions sug­gest that there is lit­tle hope of an agree­ment be­ing reached this year. So France’s ap­proach may be a smart one. It has not backed down on the tax, and com­pa­nies will still be­gin ac­cru­ing bills for it but they won’t be asked to pay if an in­ter­na­tional tax is agreed on.

More than a dozen coun­tries are also push­ing ahead with their own dig­i­tal ser­vices taxes. The Czech Repub­lic has ap­proved a par­tic­u­larly punchy 7 per cent tax on dig­i­tal rev­enues within its bor­ders, for ex­am­ple. The UK’s 2 per cent tax is due to come in in April, with pay­ments due from next year. It is un­likely to be taken to kindly in Washington dur­ing talks over a much-her­alded US-UK trade deal. Trump’s trea­sury sec­re­tary Steve Mnuchin has al­ready said the US con­sid­ers the tax to be “dis­crim­i­na­tory”.

How­ever, for Sa­jid Javid to back down would be an em­bar­rass­ing ca­pit­u­la­tion on a man­i­festo pledge and one that is ap­par­ently very pop­u­lar among the kinds of vot­ers the Con­ser­va­tives won over at the last elec­tion. All eyes will be on his March bud­get for signs of a change of tack or con­fir­ma­tion that things are go­ing ahead as planned.

So the sit­u­a­tion re­mains that an in­creas­ing num­ber of coun­tries are on a col­li­sion course with Trump who has made a habit of hit­ting op­po­nents, no­tably China, with large tar­iff in­creases. The EU has said it will re­tal­i­ate, mean­ing the sit­u­a­tion could quickly es­ca­late.

Messers Javid and Le Maire may well be hop­ing that Novem­ber’s US pres­i­den­tial elec­tion, or in­deed the present im­peach­ment pro­ceed­ings against Trump, make things a lit­tle eas­ier for them.

by BEN CHAP­MAN

The Independent

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