This was the reaction from Kevin Brady, Chairman of the US House of Representatives Ways and Means Committee, to the announcement in last week’s budget in the UK regarding the proposed introduction of a ‘Digital Services Tax’:
“The United Kingdom’s introduction of a new tax targeting cross-border digital services – which mirrors a similar proposal under consideration in the European Union – is troubling. Singling out a key global industry dominated by American companies for taxation that is inconsistent with international norms is a blatant revenue grab."
"The ongoing global dialogue on the digital economy through the OECD framework should not be pre-empted by unilateral actions that will result in double taxation. If the United Kingdom or other countries proceed, that will prompt a review of our U.S. tax and regulatory approach to determine what actions are appropriate to ensure a level playing field in global markets.”
Personally, I have a lot of sympathy for the US position. And the fact that the UK’s proposed Digital Services Tax is stated to be a temporary measure (to be disapplied “when an appropriate international solution is in place”), does not inspire much confidence. Even unpopular measures such as the ‘window tax’ managed to remain in force for 155 years in England (from 1696 to 1851).
Having said all that, complaining about increasing tax complexity must be about as pointless as an ashtray on a motorbike. Businesses and advisers should surely focus on what they can control, including compliance systems and aligning documentation with legal and commercial substance as far as possible.
N.B. On 15 November at 1pm UK time, we'll be hosting a free webinar on Intangibles and Intellectual Property, and how to manage Intercompany Agreements for Transfer Pricing compliance. You will be very welcome to join us, and to ask any questions you may have. You can reserve a place here.