Digital trade war looms as US attacks UK over digital services tax

1 Nov 2018

Image: © Florin/

The spectre of a wider EU-US digital trade war could haunt minds of EU leaders as a vital digital tax decision looms.

Europe’s plans to apply an EU digital services tax (DST) might be given a second thought as the US has already fired the first warning shots in a potential trade war over the UK’s digital tax plans.

Senior US politicians have voiced concern about the plan and warned it might prompt retaliatory action from Washington DC.

Earlier this week, UK chancellor of the exchequer, Philip Hammond, outlined plans to hit tech giants such as Google, Facebook, Amazon and Apple with a DST from 2020. The 2pc tax, revealed in the latest UK budget, will target revenues earned in the UK by online players ranging from search engines to social networks. The tax will only apply to companies that generate more than £500m a year in global revenues.

Simultaneous to this, EU leaders are due to make a decision about an EU-wide version of the DST, which will apply a 3pc levy against digital players earning more than €750m a year and could take €5bn a year out of the coffers of the embarrassingly rich tech giants.

Tech sabre-rattling

However, none of the bright sparks behind the DST or the EU’s version of it have factored in US displeasure of a tax on its companies overseas. This is a particularly large oversight considering how pugnacious the US has been in its trade wars against China of late.

“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,” said Republican representative Kevin Brady.

Brady, who helped shepherd in US tax cuts through Congress last year, described the UK’s decision as “troubling”. US treasury secretary Steven Mnuchin also voiced “strong concern” about different countries’ efforts to develop a DST.

According to the BBC, a slew of business groups, including the US Chamber of Commerce and the US Council for International Business, have also come out against the UK plan.

In Europe, the drive to create a digital tax is being largely led by France, Germany and the UK, for a tougher approach to alleged tax avoidance by tech giants such as Facebook, Google, Apple and Spotify.

Ireland, the Czech Republic, Sweden and Finland are joined at the hip in their efforts to thwart the EU digital tax proposal. Tech giants have also warned that the proposed DST – which the Austrian EU presidency could approve by December – could see them taxed double for the same revenue. Ireland stands to lose up to €160m a year in lost tax revenue if the EU presses ahead with the new digital tax plans.

Next week’s Ecofin Council in Brussels will have a crucial bearing on whether this tax proposal lives or dies. Spain has already revealed plans to apply a 3pc tax on digital companies with a worldwide turnover of €750m or more, or taxable turnover in Spain of €3m or more. But will the rest of Europe follow suit?

According to RTÉ, there are mixed reports suggesting the technical work behind a proposal for an EU-wide digital tax is not going very well and that the European Commission proposal is built on the wrong legal base.

It is understood that 19 out of 28 EU states are supportive of a measure for a digital tax.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years