UK told to 'hold fire' on April tech tax

Faisal Islam
Economics editor
@faisalislamon Twitter

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The UK has been told to "hold fire" on a new tax on big technology firms planned for April.

The OECD said that there needs to be a global agreement on technology company tax.

Without such an agreement, there would be the risk of "a cacophony" with countries going their own way.

The warning came as France agreed to delay a new tax on multinational technology firms after an angry response from Washington.

The organisation charged with brokering a global compromise on an issue threatening a transatlantic trade war has said the UK should hold fire on its digital sales tax.

As the Chancellor of the Exchequer arrived at the World Economic Forum in Davos, the Organisation for Economic Cooperation and Development (OECD)'s Secretary General Angel Gurria told the BBC that without a global solution to technology companies paying less than a fair share of tax, there would be a "cacophony and a mess" of 40 countries going their own way with "tensions rising all over the place".

In regards to the UK plan to levy a 2% tax on the UK revenues of search engines, social media companies and online marketplaces from April, Gurria, said that the government should "absolutely hold fire and contribute to a multilateral solution".

Elsewhere at the World Economic Forum, there were indications that the French Government will delay its implementation of a tech tax to until the end of the year.

What is the digital sales tax?

The UK, France and several other European countries want to make sure that technology giants pay their "fair share" of tax in countries where they operate.

These governments are concerned that technology giants - the largest of which are US companies - are avoiding taxes in the European Union.

They argue taxes should be based on where digital activity takes place not where firms have their European headquarters.

Italy, Austria and Turkey are also considering imposing new levies.

Washington is opposed to the tax which it says unfairly targets US firms.

However, Chancellor Sajid Javid has on Wednesday said the UK would push ahead with its digital tax, which could generate revenues of £500m a year.

Mr Gurria is hosting a meeting between the French finance minister Bruno Le Maire and US Treasury Secretary Steve Mnuchin to confirm a ceasefire that should prevent a tit for tat trade war between the US and Europe.

But Mr Mnuchin, in an interview with the Wall Street Journal, warned other countries including the UK that "they'll find themselves faced with President Trump's tariffs. We'll be having similar conversations with them".

However, tech companies are queuing up to say the tax system should change.

Microsoft President Brad Smith told the BBC "it does make sense for big tech companies to pay appropriate taxes".

And Apple chief executive Tim Cook in Ireland on Tuesday backed the OECD's effort to find a global solution.

Officials preparing US-UK trade talks have expressed concern that the US would raise its objections to a UK digital sales tax in trade negotiations.

The Treasury said: "We've committed to introduce our Digital Services Tax from April 2020. It will be repealed once a global solution is in place".

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