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Cheese Wars: A Rather Trumpian Response to Digital Services Taxation

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Cheese Wars: A Rather Trumpian Response to Digital Services Taxation

Since taking the oath of office in January 2017, Mr Trump has become as well known for his ability to upset friends and foes alike as he once was for his elaborately-coiffed ‘hairstyle’, orange glow and small hands…

It was, therefore, somewhat expected that a summit of leaders of NATO’s member states would be marred by ‘The Donald’ once more speaking out of turn and he did not disappoint.

Bristling with the prospect of seeing the world’s largest (and mostly US-based) tech giants facing increased surcharges on their international activities, he let rip.

Following an investigation by his administration into plans by France to introduce a digital services tax, he outlined his intention to hit back with tariffs of up to 100 per cent on that country’s exports to the US of goods including as wine, cheese and handbags.

“They’re starting to tax other people’s products…”

In typical Trump fashion, his opening remarks were bullish. Even though he stopped short of throwing echoing Bart Simpson by describing Emmanual Macron as a “cheese-eating surrender monkey”, he pulled no punches. “They’re starting to tax other people’s products,” he said, “so, therefore, we go and tax them.”

Later, of course, after his fabled consumption of cheese burgers and wiser counsel had perhaps prevailed, his tone on tax was more conciliatory, suggesting “we would rather not do that”.

Yet, as someone who came to power with the protectionist catchphrase of ‘America First’ as one of his campaign slogans, Mr Trump has a history of doing just “that” and using taxation as a favoured weapon to get his way on trade.

For example, another round of tariffs may be imposed on China as early as next week.

Still, it’s worth putting his outburst in a broader context – and one which has potential consequences for the UK too.

France’s proposal of adding a three per cent surcharge on the revenues of digital giants such as Facebook and Google is not unique.

Two months ago, Italy’s Government came up with a broadly similar policy.

Let’s not forget either that the policies advanced by both Paris and Rome only surfaced after the Treasury in London made clear its decision to tackle the spiralling profits of and comparatively small tax payments made by “established tech giants”.

In October 2018, the former Chancellor of the Exchequer Philip Hammond unveiled plans for a two per cent tax on sales generated by such firms in in the UK.

Set to be introduced in April next year, he promised that it would raise as much as £440 million a year by 2022-23.

Donald Trump & Boris Johnson…

Following Mr Trump’s threat to French commerce, Boris Johnson risked a similar broadside from the White House by reinforcing his belief that the Hammond initiative was essential to ensure that the “big digital companies….make a fairer contribution” (https://www.thetimes.co.uk/article/well-force-tech-giants-to-pay-more-tax-says-boris-johnson-nfv3rwthl?shareToken=79a93b5f4af30080c36dcc3260ab85b1).

On the one hand, the Prime Minister’s intervention is intriguing, especially given that Donald Trump has already outlined plans to levy a 25 per cent tariff on exports of food and drink, including Scotch whisky, from the European Union.

Some cynics would say that it’s also a little confused, given that one man’s digital services tax could, after all, be considered more or less the same as another man’s protectionism.

As I’ve written elsewhere on this ‘blog, the advent of digital industries has outstripped traditional tax law.

Attempts by the Organisation for Economic Co-operation and Development (OECD) to keep the world’s tax authorities onside by introducing a mutually acceptable method of tackling Google and its high tech counterparts have moved slowly.

The OECD’s cause has doubtless not been helped by the UK, France and Italy breaking ranks and coming up with their own strategies.

Even America’s defence of its tech firms has been complicated by the personal enmity between Mr Trump and the founder of Amazon (and owner of the critical Washington Post) who he dubbed “Jeff Bozo” earlier this year.

I believe that although a solution will remain out of reach for the time being, an answer will ultimately be found because the cost of a tech tax trade war may prove too great for the firm’s themselves and the world economy.

Nevertheless, I would recommend that families living within Washington’s Beltway who are planning cheese and wine parties next summer begin stocking up on Brie and Beaujolais.

Just in case….

If you have any queries about Digital Services Tax, or tax matters generally, then please get in touch.

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