We recently commented on the efforts of several nations, including the UK and France, to introduce digital services taxes on sales to their residents by big tech companies. These are being introduced while the Organization for Economic Cooperation and Development (OECD) tries to secure agreement for a global framework to tax these companies. Once the global framework has been agreed, the basis of taxing tech companies in each country will be clear. It is expected that the local taxes will then be repealed.
As many American big names appear in the list of companies likely to be affected - Alphabet (Google), Amazon, Apple, and Facebook, for example – the debate has taken on a sharp political edge. Political disagreements between the USA and those countries which are introducing their own digital services taxes have been exacerbated by OECD delays. It now seems unlikely that the OECD will be able to announce a public consultation on specific proposals until the end of 2019, with any new tax framework unlikely to take effect until 2021 at the earliest.
All of this came to a head at the recent Biarritz meeting of the G7 when, in the face of commercial reprisals threatened by the USA, President Emmanuel Macron of France agreed with President Donald Trump of the USA that, from the date the OECD framework takes force, ‘France will do away with its national tax’ and ‘everything that has already been paid under the French tax system will be reimbursed, as soon as international tax exists on digital services’.
With the French tax already in force and the OECD framework unlikely to be ready for at least two years, questions remain. Bercy, the French Ministry of Finance, provided this explanation to Le Monde: ‘The novelty is that France has undertaken to reimburse the companies concerned the difference between its tax and the future taxation currently under discussion at the international level, the OECD: for example, if this solution comes into force in 2021, France will calculate the amount that Facebook or Google would have paid in 2019 and 2020 and if the result is less than 3 per cent of the turnover required by the French tax, the groups will receive a tax credit’.
So where does this leave the UK? With its 2 per cent digital services tax set to come into force in 2020 the UK is certain to come under the same commercial pressure from the USA, whether through tariffs or the terms of any new US-UK trade agreement. If the UK is required to repay the digital services tax to companies, only to the extent that the tax exceeds the amount computed under the as-yet-unagreed OECD framework, the UK Treasury may decide to press on with its plans. However, if it seems likely that any new trade agreement with the USA requires that neither country can impose a unilateral digital services tax on companies from the other country, then that will spell the end for the UK’s digital services tax. Nothing will then happen until the OECD framework comes into force – and that’s at least two years away.