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US threatens tit-for-tat levy if UK pursues 'Big Tech' tax

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
US Treasury Secretary Steven Mnuchin attends a session at the Congress center during the World Economic Forum (WEF) annual meeting in Davos, on January 21, 2020. Photo: FABRICE COFFRINI/AFP via Getty Images

The US Treasury Secretary has hinted at possible tariffs on the UK if it presses ahead with plans for a tax on ‘Big Tech’ companies.

Steve Mnuchin said on a panel at Davos Wednesday: “We’ve been pretty clear that we think that the digital tax is discriminatory in nature.

“There’s an OECD process that we’re participating in. International tax issues are very complicated, they take long times to look at.

“If people want to just arbitrarily put taxes on our digital companies, we’ll consider arbitrarily putting taxes on car companies.”

The comments came in response to a question about a planned ‘digital services tax’ set to be introduced by the UK in April. The new 2% tax, first announced in October 2018, will target “search engines, social media platforms and online marketplaces, reflecting the value they derive from UK users”.

READ MORE: UK announces 'groundbreaking' new 'Facebook tax' to raise £400m

Asked specifically if he was threatening tariffs on the UK, Mnuchin said: “We’ll be having some private conversations about that [digital tax]. I’m sure the President and Boris will be speaking on it, as the President did with [French President] Macron.”

France this week agreed to abandon plans for its own digital services tax. In response, the US will drop plans for tariffs on $2.4bn-worth of French goods. The levies were announced last December in direct response to the digital tax.

UK Chancellor Sajid Javid appeared alongside Mnuchin on the panel at Davos and defended his government’s plans.

“We plan to go ahead with our digital services tax in April,” he said. “It is a proportional tax and it is a tax that is deliberately designed as a temporary tax. It will fall away once there is an international solution.”

READ MORE: UK told to ‘hold fire’ on big tech digital tax

Earlier on Wednesday, the OECD’s Secretary General Angel Gurria urged the UK to “hold fire” on its digital services tax. Gurria said an international deal should be reached on the issue instead.

Britain's Chancellor of the Exchequer Sajid Javid attends a session during the 50th World Economic Forum (WEF) annual meeting in Davos, Switzerland, January 22, 2020. Photo: REUTERS/Denis Balibouse

IMF managing director Kristalina Georgieva echoed Gurria’s sentiment.

“Governments do have to have the revenues so they can create a level playing field for everyone,” Georgieva said, sitting alongside Mnuchin and Javid on panel.

“If the digital industry is one that is picking up most rapidly it has to be seen as a source of this equaliser in society. But do it properly, do it so it is done within the multilateral context rather than countries popping up with taxation here there and everywhere.”

Javid signalled he supported an international solution, led by the OECD.

“This does require an international solution,” the Chancellor. “That is something we all agree on. This year could be that year of change.”

READ MORE: Champagne to cheese: US prepping $2.4bn of tariffs on French goods

report last year accused six US tech firms — Amazon (AMZN), Facebook (FB), Google (GOOG), Netflix (NFLX), Apple (AAPL) and Microsoft (MSFT) — of “aggressively avoiding” $100bn of global tax over the past 10 years by moving sales and profits through low-tax countries such as Bermuda, Ireland, Luxembourg, and the Netherlands.

Javid, Mnuchin, and Georgieva’s comments on a digital services tax came during a panel on the future of financial markets at the World Economic Forum’s annual meeting, colloquially known as Davos. The week-long conference draws around 3,000 of the world’s top decision makers from politics and business. Speakers include US President Donald Trump, Google CEO Sundar Pichai, and Bank of England Governor Mark Carney.