Trans-Atlantic Tech Tax Feud Escalates

Trade tensions between the United States and the United Kingdom grew over a proposed tax on large, worldwide technology companies, many of which are based in the United States. U.S. Treasury Secretary Steven Mnuchin and his British counterpart, Sajid Javid, discussed the matter at the World Economic Forum in Davos, Switzerland. Britain will move forward with its plans, creating a temporary tax until the countries came to a broader international agreement. Other European countries are considering taxing search engines, social media platforms, and online markets in an effort to counteract lost revenue; meanwhile, the U.S. claims that these taxes unfairly target American companies, such as Google, Facebook, Apple, and Amazon.

The potentially taxing countries argue that taxes should be determined where the digital or tech activity occurs, not where a company is headquartered. The United Kingdom, France, Italy, Austria, and Turkey are considering imposing such taxes. 

The U.K. will not back down on its multibillion-pound tax; a levy tax for 2% of company revenue. This could increase public finances in that country by 500 million pounds per year. Javid stated, “[w]e plan to go ahead with our digital services tax in April. It’s a proportionate tax and it’s deliberately designed as a temporary tax, so it will fall away once there is an international solution.” Additionally, “[t]he problem is that the tax arrangements of multinational tax companies are undermining public trust and confidence in our economic system. The solution is an international agreement and Britain is at the forefront of discussions to achieve one,” a spokesperson for Prime Minister Boris Johnson said.

“International tax issues are very complicated and take a long time to look at. If people want to just arbitrarily put taxes on our digital companies, we’ll consider arbitrarily putting taxes on car companies,” Mnuchin stated. Mnuchin added that discussions between the countries would be held in private.

The tax is geared towards tech companies that do a significant amount of business in the U.K. but do not pay taxes based on the company size.

France agreed to stop receiving revenue for its 3% tech tax after the U.S. threatened to place tariffs on French wine in retaliation; the U.S. has also suspended its proposed tariffs. It will wait until the end of the year for a multilateral tax reform agreement. Javid claimed the U.K. would continue with its tax efforts and not back down.

The tax dispute comes as the U.K. prepares to leave the European Union, after which it is preparing to work out new trade deals.  New agreements with both the European Union and the United States is a top priority for Britain. In response to the prospect of new trade deals with the U.K., Mnuchin added, “We’re very much looking forward to a new trade agreement with the U.K. That’s a big priority of ours for this year.” Ursula von der Leyen, President of the European Commission, stated that Britain should not feel it was pressured to pick a deal between Europe or America.

The Organisation for Economic Cooperation and Development is overseeing efforts for a multilateral agreement. Secretary General Angel Gurria stated “there would be a ‘cacophony and a mess’ of 40 countries going their own way with ‘tensions rising all over the place.’” Gurria argued that the U.K. should wait for an international agreement.

“The U.S. is one of U.K. automotive’s most important global partners, second only to the EU in trade terms, so the continued threat of additional tariffs that could endanger the viability of our sector is of huge concern” Mike Hawes, Chief Executive of the Society of Motor Manufacturers and Traders, said. Approximately 20 percent of cars manufactured in the U.K. are exported to the United States, worth 8.4 billion pounds.