US challenges ‘unfair’ tech taxes in the UK and EU

The US has launched a formal investigation into new digital taxes over concerns they “unfairly target” American tech giants like Facebook.

The inquiry will examine tax schemes in 10 jurisdictions including the UK, European Union and India.

It is the first step in a process that could lead to the introduction of tariffs, or other trade retaliation.

The Treasury defended the UK levy, saying it did not violate “international obligations”.

“Our Digital Services Tax ensures that digital businesses pay tax in the UK that reflects the value they derive from UK users, and is compatible with the UK’s international obligations,” a spokesperson said.

The probe comes as a rising number of countries consider new taxes on online services, arguing that firms pay too little under current law and should be taxed based on where sales or activity takes place, rather than where they are headquartered.

The US, home to many big tech companies such as Google and Amazon, has said the issue should be addressed in a multilateral agreement via the Organisation for Economic Co-operation and Development.

But those discussions have been slow-going, prompting many countries to forge ahead on their own.

In the UK, a 2% tax on digital sales came into force in April. Lawmakers in Spain are expected to take up the matter this week.

“President Trump is concerned that many of our trading partners are adopting tax schemes designed to unfairly target our companies,” US Trade Representative Robert Lighthizer said in a statement.

“We are prepared to take all appropriate action to defend our businesses and workers against any such discrimination.”

Tech tax momentum

Officials have said in the past that the administration would consider taxes on foreign cars as retaliation.

Last year, after France moved forward with a 3% tax on sales, the US threatened tariffs on $2.4bn (£1.9bn) worth of French goods, including cheese and champagne, after a similar investigation declared the new levy “discriminatory”.

The US dropped the threat this winter after France agreed to delay collection until the end of 2020.

The Treasury added that the UK has said it would remove its services tax in the event of a broader deal.

“We have always been clear that our preference is for a global solution to the tax challenges posed by digitalisation and we’ll continue to work with the US and other international partners to achieve that objective,” a spokesperson said in a statement.

The probe announced on Tuesday concerns taxes that have gone into effect, or are being planned, in Austria, Brazil, the Czech Republic, European Union, Indonesia, India, Italy, Turkey, Spain, and the UK.

The US has requested comments on the matter, which must be submitted by 15 July.