United States backlash over the Chancellor’s Digital Services Tax
US political leaders and business groups have spoken out against Chancellor Philip Hammond’s proposed new Digital Services Tax, announced in the Autumn Budget on Monday.
Rep. Kevin Brady R-Texas, chairman of The Committee on Ways and Means, the House of Representatives’ chief tax-writing committee, blasted the proposal. “Singling out a key global industry dominated by American companies for taxation that is inconsistent with international norms is a blatant revenue grab”, he said in a press release on Wednesday. “If the United Kingdom or other countries proceed, that will prompt a review of our US tax and regulatory approach to determine what actions are appropriate to ensure a level playing field in global markets”.
Mr Brady called the recent development “troubling”, citing the European’s Union current consideration of similar proposals. The UK’s new tax will charge certain types of online business 2% of revenue relating to UK users, rather taxing profits.
Mr Hammond’s announcement comes just a week after US Treasury Secretary Steven T. Mnuchin issued a statement on Digital Economy Taxation, urging US partners to take a multilateral approach: “I highlight again our strong concern with countries’ consideration of a unilateral and unfair gross sales tax that targets our technology and internet companies. A tax should be based on income, not sales, and should not single out a specific industry for taxation under a different standard. We urge our partners to finish the OECD process with us rather than taking unilateral action in this area.”
Following Monday’s announcement, CEO of the US Chamber of Commerce, Tom Donohue, wrote in a letter to Steven Mnuchin to voice his concerns. “unilateral European actions will erode trust and lessen the prospects for international agreement; indeed, we now see governments outside of Europe considering similar actions”.
Taxation has historically been a touchy subject between Britain and the United States. The new Digital Services Tax will target almost exclusively American firms, including Amazon, Alphabet (Google’s parent company), Microsoft and Facebook. Controversially, the world’s richest company, Apple, does not seem to be caught under the new proposals; neither does Uber.
With Britain seeking to sign a new trade deal with the United States post-Brexit, US commentators are already warning that the Digital Services Tax could severely harm the chances of any such deal, particularly given the current political attitude towards such matters at the White House.
International efforts have until now focused on a multilateral approach to taxing internet giants. In March 2018 an agreement was reached amongst more than 110 countries at the OECD to work towards a long-term multilateral solution by 2020, in response to a mandate from the G20 Finance Ministers. It would seem Mr Hammond preferred to act sooner, undermining existing efforts.
Spain introduced a new tax on online businesses earlier in the year. Australia, India, Colombia and the European Union are currently considering similar proposals.
2nd November 2018.