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US retaliates to digital services tax with tariff war threat

The digital services tax was always going to irritate its victims but it still comes a shock to discover that President Joe Biden has launched a tariff war in their defence.

1st Apr 2021
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This may initially sound like the plot for one of those particularly bad B-movies you might see on the likes of Amazon Prime. For the avoidance of doubt, any resemblance between characters in this fictional story and real life are entirely coincidental.

An evil genius (in this case not much of a genius) who we shall nickname “Trumper” wants to take over the world. He starts with his own country and then enlists the support of a series of unstoppable monsters with names such as Amazona, Googler, Facebooker or Microsofter.

Eventually, the forces of good manage to defeat Trumper but do not manage to kill off his marauding pets.

Instead, they become all-powerful so that even Trumper’s benign successor “Bidey” has no choice but to do their bidding.

So far, so tedious and derivative. We have all seen this movie far too many times before.

The problem is that the underlying subject matter this time around is global taxation. More particularly, it comes as a severe disappointment to discover that a couple of months after his inauguration, Joe Biden has rubber-stamped the plan to launch a tit-for-tat war over tax and tariffs between the USA and a number of other countries including our own.

The flashpoint for this war is what many would view as a perfectly reasonable standpoint taken by France, the UK and a number of other countries. They believe that the aggressive tax avoidance strategies used by the largest multinationals, which all just happen to be based in the United States, are unacceptable.

Frankly, at 2% the UK’s Digital Services Tax seems rather puny weapon with which to attack these all-powerful and uncontrollable beasts.

Why, one asks, should the man in the street be paying more taxes than global megaliths? It is very hard to come up with an answer that does not include the term “bullying” or an equivalent.

That becomes even more apparent when it appears that these corporations are more powerful even than the President of the United States of America.

As a result, and entirely coincidentally, the money that United Kingdom has managed to generate from this tax is now going to be offset by random tariffs used to penalised UK exporters trading with the States.

We have all heard the old arguments trotted out. These companies provide employment and pay or generate selected taxes including payroll taxes and VAT, although the latter has also been a target for avoidance strategies.

This argument might sound plausible until you stop to think. Most profitable companies competing with these groups in the UK not only pay payroll taxes and generate VAT but also hand over corporation tax and business rates.

To use an analogy, if I go into a department store and pay for a chair and some crockery, that does not give me the right to walk off with an iPhone and a laptop under my arm, sticking two fingers up in the direction of the store detective.

Theoretically, there should be a more coherent solution, represented by either a concerted approach from the European Union, not that that will help us at all, or very belatedly OECD. However, we have been waiting far too long, which was presumably the reason for taking unilateral action.

Who knows what will happen in the long term? It appears that nobody is able to control the large multinational tech companies, not even President Biden.

Unless we are willing to turn our backs on these companies, which would presumably mean getting into a much closer relationship with China or conceivably Russia, it appears that we will have to remain part of this bad B-movie for the foreseeable future.

This matters because if the big boys don’t pay their taxes, then we will have to pay more to shore up the gap. Alternatively, UK traders are going to suffer both because they cannot compete and their customers will be subject to tariffs of up to 25% on goods exported to the United States.

There has to be a chance that the OECD will eventually get its act together but don’t hold your breath.

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