UK follows in the footsteps of Donald Trump on digital tax

The US president’s offshore overhaul spurs other countries to action


OCTOBER 29, 2018


Britain appeared to lay down a line in the sand Monday, as its chancellor Philip Hammond announced that the UK would unilaterally implement a tax on digital services if there were no forthcoming international agreement about how to tax Big Tech giants such as Google, Facebook and Apple.

But the credit may actually go to the Great Disruptor, President Donald Trump, whose own US tax reform plan, which included a minimum tax on intangible assets, has pushed other countries to grab their share of the pie. Advanced economies and developing countries alike have been wrangling for years about how to get technology companies, which can easily relocate the profits from intangible assets to tax havens, to pay more of their income into public coffers.

Much of the discussion about how to create a new international tax framework suitable for a world in which most corporate wealth lives in data, software, and intellectual property has been led by the OECD/G20 Inclusive Framework on BEPS (which stands for “base erosion and profit shifting”).

Yet predictably for a group that has to build consensus in 110 countries and jurisdictions, progress is stalled. The last BEPS report, which came out in March, punted on solutions until 2020.

While former US president Barack Obama had for years called for tax loopholes to be closed, he never succeeded in securing a deal for Silicon Valley to bring profits back home so the US government could capture some of the wealth. But the Republicans’ tax plan, which passed Congress late last year, included a provision on “global intangible low-taxed income” (the rather cleverly named GILTI), which was in essence a tax on technology companies that pay much lower than usual tax rates.

Since then India, Italy, Spain and now the UK have piled in with proposals designed to take a chunk of the Croesan wealth of Big Tech. While they vary in percentage amounts and what they propose to tax, they are not too far off that 10.5 per cent floor in practical terms.

It’s an amazing piece of Trump ju-jitsu that the president’s policies have actually pushed the global tax debate exactly where some liberals were hoping it might go.

“It shows how broken the current system is that there’s the need for this sort of disruptive action,” says Tommaso Faccio, the head of secretariat at the Independent Commission for the Reform of International Corporate Taxation, a group of leftwing economists such as Joseph Stiglitz and Thomas Piketty who are pushing for a new digital tax system.

While Mr Trump set a de facto floor on digital tax, he has also inflamed the debate about where value lives in the digital age. Countries such as China and Germany are inclined to buy into the US philosophy of a minimum corporate tax, since they have large innovators (which include not just tech firms but carmakers) to protect. Other countries, such as the UK and France, want to locate value in data and users.

Tax may become yet another aspect of global trade relations to become weaponised.

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ICRICTTommaso Faccio