The Conservative Party risks a “complete capitulation” to Donald Trump on a manifesto pledge to clamp down on tax dodging by US technology companies, a taxation expert has said.
The warning came after Mr Trump retaliated against a similar tax imposed by France aimed at making firms pay more in the countries where they generate their sales.
The US president threatened to hit French imports including cheese and Champagne with 100 per cent tariffs, prompting anger from president Emanual Macron.
Mr Trump also said the EU should “shape up, otherwise things are going to get very tough. I'm not in love with those (tech) companies, but they're our companies.”
Boris Johnson’s party has committed in its manifesto to implement its own so-called digital services tax which is due to come in in April. The president’s latest move suggests it would be a non-starter in talks over a post-Brexit trade deal with the US.
“If a UK government does not progress with this it is enormously significant,” said Paul Monaghan, chief executive of the Fair Tax Mark, which accredits companies who meet fair taxation and disclosure standards.” It would be a complete capitulation to the US.”
Lobby group British American Business told the Times that the UK’s proposed tax could damage “the momentum of any upcoming talks” and “distract from efforts” to come to a free trade agreement.
It was the second blow for the government’s trade agenda on Tuesday and came as foreign secretary Dominic Raab was forced to admit that US drug companies would be able to charge the NHS more money for medicines as part of a deal, though he insisted it would be “hugely unlikely” that they would do so.
Research published this week by Fair Tax Mark found that the “Silicon Six” - Amazon, Facebook, Apple, Netflix, Microsoft and Google - have “aggressively avoided” more than $100bn in tax by paying less cash to governments than their accounts say they have provided for. “We conclude that the corporation tax paid has been much lower than is commonly understood,” said Mr Monaghan.
The French tax imposes a 3 per cent annual levy on revenues generated in France by digital companies with yearly global sales worth more than €750m and French revenue exceeding €25m.
America claims the tax unfairly targets its firms and signalled that it is willing to step up its aggression against countries that attempt to unilaterally clamp down on avoidance.
US Trade Representative Representative Robert Lightizer said the announcement on French tariffs: “sends a clear signal that the US will take action against digital tax regimes that discriminate or otherwise impose undue burdens on US companies.”
French president Emmanuel Macron warned that action against France would amount to an attack on Europe and could prompt a collective response from the EU.
“We'll see where the discussions lead in the coming weeks, but it will involve a European response,” Macron said in a meeting with Trump on the sidelines of a NATO summit in London.
Mr Macron said it is “not fair” that digital companies are taxed less than those in other sectors. “My first question is what will happen with the United Kingdom, which adopted the same tax? For Italy, the same tax? Austria, Spain ...,” Macron asked. “If we're serious, those countries will have to be treated the same way.”
Wealthy countries are in talks about a common approach to taxing big multinationals but there were indications on Tuesday that America may pull out. Washington had previously promoted the multilateral approach via the Organisation of Cooperation and Development as a better alternative to countries implementing their own unilateral taxes.
Mr Trump also dashed hopes that America and China could resolve their long-running trade dispute, saying that there was little hope of a deal being reached imminently.
The president’s latest tariff threats wiped nearly £32bn of the value of the FTSE 100, sending the index to its lowest level since October.
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