Danny McCance 31 Oct 2018 12:17pm

US backlash over digital services tax

In a letter to US Treasury secretary Steve Mnuchin, CEO of the US Chamber of Commerce Tom Donohue has voiced concerns about the digital services tax (DST)

While Donohue said he welcomes international dialogue, he warned that “unilateral European actions will erode trust and lessen the prospects for international agreement; indeed, we now see governments outside of Europe considering similar actions”.

He encouraged Mnuchin and the US administration to “urge your European counterparts to collaborate on consensus measures that respond to taxation concerns without punitively targeting American firms in the process”.

While not specifically directed towards chancellor Philip Hammond, who in Monday’s Budget announced that in 2020 the UK would implement a UK DST aimed at large tech companies, the message was still clear.

“First, proposing to tax revenues ignores the costs associated with sales. Such a turnover tax dissuades investment and discourages innovation and entrepreneurship,” Donohue said.

His statement echoed the concerns held by some policy experts, who felt that the tax might unduly burden businesses and deter investment.

Donohue said that a DST would “improperly target large American technology companies” and singling out specific companies or sectors would “set a dangerous precedent”.

He also questioned how “digitally enabled companies” were defined and said that the current definition was not clear and “risks encompassing an even larger pool of companies”.

Finally, Donohue said the measures are being billed as temporary while an international solution is agreed on, but that “it is hard to imagine these taxes being lifted once such an agreement is reached”.

In his Budget speech on Monday, Hammond said the government “will continue to work at the OECD and G20 to seek a globally agreed solution and if one emerges, we will consider adopting it in place of the UK digital services tax”.

In a separate statement last week, Mnuchin said "I highlight again our strong concern with countries’ consideration of a unilateral and unfair gross sales tax that targets our technology and internet companies."

He said that a tax should be based on income rather than sales and that specific sectors should not be taxed under different standards.

"We urge our partners to finish the OECD process with us rather than taking unilateral action in this area," Mnuchin said.