US criticises UK's digital service tax decision

Europe’s plans to apply an EU digital sales tax might be given a second thought as the US has already fired the first warning shots in a potential trade war over the UK’s digital tax plans.

Senior US politicians have described the plans as “troubling” and warn it might prompt retaliatory action from Washington DC.

Earlier this week, UK Chancellor of the Exchequer Philip Hammond outlined plans to hit tech giants such as Google, Facebook, Amazon and Apple with a new digital services tax (DST) from 2020. The 2% tax, revealed in the latest UK budget, will target revenues earned in the UK by online players ranging from search engines to social networks. The tax will only apply to companies that generate more than £500m a year in global revenues.

Simultaneous to this, EU leaders are due to make a decision about an EU-wide version of the DST that will apply a 3% levy against digital players earning more than €750m a year that could take €5bn a year out of the coffers of the embarrassingly rich tech giants.

Next week’s Ecofin Council in Brussels will have a crucial bearing on whether this tax proposal lives or dies.

“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,” said Republican representative Kevin Brady.

Brady, who helped shepherd US tax cuts through Congress last year, described the UK’s decision as troubling. US treasury secretary Steven Mnuchin also voiced “strong concern” about different countries’ efforts to develop a digital sales tax.

In Europe, the drive to create a digital tax is being largely led by France, Germany and the UK, for a tougher approach to alleged tax avoidance by tech giants such as Facebook, Google, Apple and Spotify.

Ireland, the Czech Republic, Sweden and Finland are joined at the hip in their efforts to thwart the EU digital tax proposal. Tech giants have also warned that the proposed digital services tax – which the Austrian EU presidency could approve by December – could see them taxed double for the same revenue.

Ireland stands to lose up to €160m a year in lost tax revenue if the EU presses ahead with the new digital tax planning.

Spain has already revealed plans to apply a 3% tax on digital companies with a worldwide turnover of €750m or more or taxable turnover in Spain of €3m or more.

According to RTE, there are mixed reports suggesting the technical work behind a proposal for an EU-wide digital tax is not going very well and that the Commission proposal is built on the wrong legal base.

It is understood that 19 out of 28 EU states are supportive of a measure for a digital tax.