Trust Bloomberg Tax for the international news and analysis to navigate the complex tax treaty networks and global business regulations.
By Ben Stupples
The global debate around new taxes on the revenue of digital companies like Facebook Inc. centers on governments’ relations with U.S. President Donald Trump, according to a former senior U.K. official.
“There seems to be a world of saber-rattling at the moment,” Edward Troup, the U.K. tax authority’s former executive chair, said during a July 9 conference speech in London about governments’ stances on enforcing revenue taxes for businesses in the digtalized economy.
Whether the U.K. “should join the fun or try and be a bit more statesmanlike is an interesting gamesmanship question as to how you deal with the President of the United States.”
Internet-based companies’ lack of physical presence, together with the way they often derive huge profits from user-generated value, has created issues for tax authorities across the globe.
Troup’s comments at the conference, organized by the U.K.’s Institute for Fiscal Studies think-tank and the European Tax Policy Forum, mark his first in public on the ongoing debate around countries possibly imposing new taxes on the revenue of internet-based companies.
The Organization for Economic Cooperation and Development is aiming to find worldwide consensus on the issue in 2020. Ahead of that date, however, the EU’s executive arm in March proposed a 3 percent temporary tax on the revenue of social media and search engine companies, and online platforms like eBay Inc.
The same month the European Commission released its proposal, the U.K. Treasury said it was ready to introduce a revenue-based tax on these businesses in the absence of a global consensus. Other countries, including Italy and India, have already taken similar steps.
Policymakers have stressed they aren’t targeting U.S. businesses with their proposals. Nonetheless, the EU’s and U.K.’s interim measures would hit several American companies, like Alphabet Inc.’s Google, at a time when President Trump is threatening a global trade war.
Both the EU and the U.K. are opting for revenue-based levies on digital companies, as sales are easier for tax authorities to pinpoint as user-generated value in their jurisdiction in comparison to profits.
In a March 21 memo, the European Commission grouped companies built around “search engines,” alongside social media companies like Facebook Inc., as examples of user-generated value for businesses. The U.K. Treasury also indirectly cited Google in its own plans for a revenue tax on digital companies, arguing that grouped user data can boost a search engine’s efficiency.
In response to these proposals, Google warned at a University of Oxford business tax conference last week about incorrect assumptions on the role of user data in its search engine business.
A U.K. Treasury official said last month, meanwhile, his team is still “actively” working on policy for a revenue-based tax, despite recent claims that Britain had backtracked on its original plans.
If the U.K. introduces its own revenue-based tax on the likes of Facebook, the move wouldn’t mark the first time the British government has broken out from global policy efforts.
In April 2015, the U.K. introduced its diverted profits tax amid the OECD’s 15-action project to re-write corporate tax policy for multinational businesses. At the time, then-U.S. Treasury official Robert Stack said the U.K.’s move pushed the project in “a disturbing direction.”
At the July 9 conference, Troup acknowledged the negative effect of countries enforcing individual tax measures. He defended the decision to introduce the DPT, though, which penalizes multinational businesses improperly avoiding U.K. taxes through contrived structures.
“It had to be done in order to move the debate forward,” Troup said in a keynote speech at the conference. “It was the right thing to do at the time in order to improve things generally.”
Three years after the U.K. DPT’s introduction, European Commission officials are making similar comments to Troup about their reasoning for proposed interim taxes on digital companies.
At last week’s Oxford University Centre for Business Taxation summer tax conference, commission economic analyst Valeska Gronert said the EU wanted “to feed the discussion” around the taxation of the digitalized economy, “and maybe even push it a little bit.”
Tim Power, deputy director of the U.K. Treasury’s corporate tax team, acknowledged this attitude in the debate at a June 22 International Fiscal Association event in London.
Some countries “feel compelled to go down this route if their concerns aren’t addressed” through OECD-led tax policy reforms, Power said at IFA’s joint meeting with the Treasury and Her Majesty’s Revenue and Customs, the U.K. tax agency. For them, the interim measures are “a way of incentivizing other countries and businesses to come to the table.”
To contact the reporter on this story: Ben Stupples in London at firstname.lastname@example.org
To contact the editor responsible for this story: Penny Sukhraj at email@example.com
Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)