Javid stands by proposed digital tax in face of US threats

22 January 2020, 11:14 | Updated: 23 January 2020, 09:18

Chancellor Sajid Javid has vowed to go ahead with the UK's digital services tax in April despite threats of US retaliation.

The tax on revenues, proposed by former chancellor Philip Hammond in 2018, aims to raise more than £400m for the Treasury by 2022.

It would see digital companies with global sales exceeding £500m and at least £25m worth of UK sales pay a tax of 2% on those UK sales.

But the US sees it as a "tax grab" on American companies.

Speaking at the World Economic Forum in Davos, Switzerland, Mr Javid confirmed Britain's intention to go ahead with the tax in April.

He said: "It's a proportionate tax and it's deliberately designed as a temporary tax, so it will fall away once there is an international solution."

That effort is being led by the Paris-based OECD but talks have dragged on for years.

US Treasury Secretary Steven Mnuchin has threatened Britain with retaliation if the UK tax goes ahead.

Mr Mnuchin said: "International tax issues are very complicated and take a long time to look at.

"If people want to just arbitrarily put taxes on our digital companies, we'll consider arbitrarily putting taxes on car companies."

Britain is among several European nations considering taxing search engines, social media platforms and online marketplaces due to claims that they shift their profits to other countries to cut their tax liability.

France considered a similar tax but agreed to suspend payments this year after the US threatened retaliatory tariffs on French wine and other products.

Earlier this week, Gita Gopinath, chief economist at the International Monetary Fund, said: "A new international taxation regime is needed to adapt to the growing digital economy and to curtail tax avoidance and evasion, while ensuring that all countries receive their fair share of tax revenues."

US President Donald Trump also threatened high tariffs on imports of cars from the European Union if he does not get a trade deal from the bloc.

Mr Trump told CNBC on Wednesday: "I met with the new head of the European Commission, who's terrific and I had a great talk.

"But I said, 'look, if we don't get something, I'm going to have to take action' and the action will be very high tariffs on their cars and on other things that come into our country."

He added that the EU had to make a deal on trade as "they have no choice".

Regarding a post-Brexit US-UK trade deal, Mr Mnuchin said talks would be private.

He added: "We're very much looking forward to a new trade agreement with the UK - that's a big priority of ours for this year."