Nick Blundell

Written by: Nick Blundell

Nick Blundell

Partner

Have fears of US reprisals stalled the EU’s proposed digital tax reforms?

  • May 2018
  • 2 minutes

Over the weekend plans for an interim EU-wide turnover tax on digital businesses took a step back.

The need for the tax system to catch up with modern digital business models is well understood, with the G20 and OECD working towards a solution by 2020.

Both the UK and the EU have been looking for an interim solution and over the weekend, the Economic and Financial Affairs Council discussed proposals for a ‘new indirect tax on revenues created from certain digital activities which escape the current tax framework entirely’.

However, several previous supporters of such an interim measure, including the UK, seem to have got cold feet, now preferring to wait for a global solution.

Indeed, the UK government had gone so far as stating it was willing to go it alone with such reforms in the absence of significant progress on a multilateral or EU agreement.

It seems fear of reaction from the US, which is home to many of these tech giants, is halting the process.

While the meeting was a closed-door session, it has been reported that Mr Hammond said, ‘You have to understand that the Trump administration will regard the turnover tax as a hostile act’.

Perhaps the UK government is starting to have concerns over the possible effect this could have on the much-championed post-Brexit trade deal with the US.

Likewise fears of triggering trade barriers similar to those the Chinese could be facing may also be changing opinions.

Even when consensus is reached, how rules are implemented can cause just as many arguments. 

When the Irish government announced it had finally reached an agreement regarding the payment of tax with Apple last week, it made it clear that it still fundamentally disagrees with the Commission’s ruling. 

The US has never hidden its displeasure at the original ruling, warning the approach ‘undermines US tax treaties’. So, maybe the fears of US reprisals to these interim measures are not so unfounded.

Given the UK government’s change of heart, and the need for unanimous agreement of all 28 member states, it sounds like we won’t be seeing a new pan-European (or indeed a UK-only) turnover tax any time soon. And with US influence causing such disagreements, perhaps the OECD may get there before any ‘interim’ measures.

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