As the UK’s March budget announcement draws closer, so too does the introduction of its new planned digital tax. We expect the tech tax to ensure the global tech giants, like Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOGL), will pay more tax on sales they make in the UK than they do currently. However, the U.S. has taken exception to this incoming measure and is threatening to impose punitive taxes on British car manufacturers making sales in the U.S.
The row escalated in Davos at the annual international economic forum. However, so far, the UK appears to be standing firm on its plans to introduce a 2% tax rate on sales made to UK consumers by global tech companies, including Facebook (NASDAQ:FB) and Apple (NASDAQ:AAPL). Indeed, two different members of the UK government have publicly stated their intention to introduce the tax this year.
UK holds firm on the tech tax plan
Davos is a busy time for global government ministers as they’re all in the same place at the same time. That can prove positive in many cases. However, with regards to the UK’s digital tax plans and the U.S. view of it, it encouraged much-heated debate and strong comments from both parties.
In recent days, both UK Trade Secretary Liz Truss and Chancellor Sajid Javid have shown a united front on the UK’s incoming tech tax.
Javid explained that the UK is currently planning to go ahead and introduce the tax. He said the tech tax was designed to be a temporary solution that will no longer apply once an international resolution on the matter is agreed.
Truss, meanwhile, stated very clearly that the UK would make its own decisions on its tax policies. The UK’s trade minster told reporters that any decisions on UK tax issues are a matter for the UK’s chancellor and government and no-one else.
U.S. threatens auto tax on UK car manufacturers
The U.S. government, meanwhile, believes that the UK’s planned digital tax unfairly aims a number of its most prominent businesses. Also, it’s been pointed out that global discussions are underway to find a comprehensive solution to the taxation of tech companies who operate globally but might base regional head offices in countries with more lenient tax rules.
Speaking at Davos, U.S. Treasury Secretary Steve Mnuchin told his audience that the U.S. views the UK’s digital tax plan as discriminatory. He added that if the UK wants to go ahead and implement its new tax, then the U.S. will consider introducing new taxes on UK car companies that do business in the U.S.
If the U.S. does introduce higher taxes on the sale of UK-made vehicles sold in the U.S., it could lead to an increase in the cost of British vehicles, which are widespread across the U.S. Data sourced from the Society of Motor Manufacturers and Traders (SMMT) shows that in 2019, 17.9% of UK-made vehicles were exported to the U.S. That makes the U.S the second-biggest export market for UK-manufactured vehicles, behind the EU.
UK’s planned tax elicits mixed views
While the UK and the U.S. have different views on how to manage the digital tax issue, they’re not alone in their difference of opinion. Margrethe Vestager, a tech regulator for the European Commission, said she strongly supports the UK’s digital tax plans.
Vestager, who is known for her tough stance on tax issues, said she thinks that right now, there is an imbalance between smaller firms who must pay taxes on all their sales and some global digital firms who don’t.
However, the French government has agreed to put its digital tax plans on hold for 12 months while talks about finding a global solution continue.
Separately, Angel Gurria, secretary-general of the Organisation for Economic Co-operation and Development (OECD), told reporters at Davos that the UK should wait a little longer before implementing its digital tax.
He said that a joint solution would be the best for everyone, but if 40 countries were to introduce their tax measures on this issue, it would create global disagreement and tension.UK’s Auto Industry Could Suffer as Tax Spat With U.S. Escalates