'It will go badly': US political and business leaders attack Chancellor’s Digital Services Tax

The US has criticised a UK plan to hit technology giants with a new digital services tax.

The measures were announced during the Chancellor’s Autumn Budget this week, but political leaders in the US joined business groups in calling for the proposal to be scrapped, claiming it violates tax agreements by targeting American businesses.

If the digital services tax is brought in it could lead to US retaliation and harm prospects for a trade deal after Brexit, they said.

According to the BBC, Republican Representative Kevin Brady said yesterday (October 31) in a statement: “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.”

Mr Brady was among those who helped push US tax cuts through Congress in 2017.

His concerns echoed comments made last week by Steven Mnuchin, US Treasury Secretary, who expressed “strong concern” over different countries potentially developing a digital sales tax of their own.

Business groups to have come out against the UK’s plan include the US Council for International Business and the US Chamber of Commerce.

According to National Foreign Trade Council president Rufus Yerxa, the digital services tax could “complicate the United Kingdom’s push for deeper US-UK trade relations”.

If enacted in April 2020 as set out in the Budget, the plan will place a 2% tax on sales generated by large tech companies such as social media platforms, search engines and online marketplaces. But it will only affect businesses with global revenues of at least £500m

Responding to the comments made by Representative Brady, a spokesperson for the UK Treasury defended the tax as “proportionate and targeted interim response that reflects the changing global economy, and how digital businesses derive value from users.”

They added: “It’s not targeted at any country and seeks to ensure the tax system is fair.”

But Itai Grinberg, a law professor at Georgetown University in Washington DC, said the UK’s decision to introduce its own digital services tax undermines efforts to reach an international solution by giving other countries license to follow suit, commenting: “I think it will go badly for the UK.”

Elsewhere, efforts to take more tax from global tech giants, which are typically taxed based on where they maintain a physical presence, are starting to gain momentum.

The European Commission has tabled proposals for a 3% tax on revenues of internet businesses with global annual sales over €750m (c.£660m).

Some EU member states are opposed but a vote could be held before the end of the year.

Similarly, and separate to the EU’s plan, Spain introduced a digital service measure in its last budget, and a slew of other countries including Australia, India and Colombia are believed to be debating new tax measures targeting the digital giants.