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Philip Hammond, British Chancellor of the Treasury, was formed headlines promising to introduce a new income tax on large technology companies to compensate them for the low rate of taxation of profits. As documented in several information points, the mechanism could be implemented as early as 2020.
British Treasury Chancellor Philip Hammond in London, Monday, October 29, 2018 (AP Photo / Frank Augstein)
Surprisingly, it is the United Kingdom, not, say, France, now is racing to tax large technology companies. But because Philip Hammond's proposal has caused quite a stir, it is worth remembering a few key facts about political economy taxation of enterprises in the digital era.
Above all, the wildest motions on the digital tax front are sometimes taken by the most pro-competitive politicians. The simple reason is that when they lower taxes on rich individuals and corporations in general, conservative politicians often leave their supporters. Despite what many people accept, the majority of voters, including conservatives, enjoy justice and social justice. Above all, they really I do not like that the middle class pays all taxes. And yes, for the Tory minister, it finally turns out to be convenient to address American technology giants to compensate for the actual efforts to reduce taxes on rich and large corporations. It was years ago David Cameron. Now Philip Hammond fills his shoes.
Secondly, there is a problem as to how the US will react. Under Obama, the US reaction to such proposals was always friendly but firm "No". Obama rightly so I saw Silicon Valley as a powerful ally. They contributed much to the campaign in 2012. They also helped him transform the federal government and improve the situation providing public services. So Obama did not want his friends from the world of technology to be hit too hard by the European tax authorities. And because Europeans were friendly to the Obama administration, it could always be solved. The radical European proposals were eventually stopped in exchange for more constructive discussions under the OECD and G20.
Today the context is completely different. Trump is the president and although he does not like the technology industry, his administration is in principle against the idea of US companies being hit by unilateral tax measures on the European market, which is so important for their profits and losses. If Britain moves forward with Hammond's idea, Trump's administration is likely to take retaliatory measures less friendly than what Europeans have been accustomed to as part of Obama.
Then there is one final catch. It sounds so simple that you can impose new taxes "Search Engines" (ie Google) and "Social platforms" (Facebook). However, taxation remains a domain governed by the rule of law (and fortunately). Taxpayers are not appointed by name. They pay taxes only if they meet certain criteria and some amounts exceed certain thresholds. & Nbsp;Therefore, it is highly likely that the tax to be weighed on Google and Facebook will eventually be paid not only (and mainly) by US technology companies, but rather by European technology companies, as well as other older companies which are making more and more companies online.
Adding to this the fact that Hammond tax would be highly distorted by weighing income, not profit (why do we use the same rate for Google and Amazon revenues when its margin is thin, while the first is thick?) And you have a better sense of why this tax will probably never see the light of day. As a Tory government in difficult Brexit negotiations, you simply can not afford to argue with the US government and you risk unintentional consequences for your own tax base thanks to the theatrical and ill-designed attempt of a more populist sound.
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Philip Hammond, British Chancellor of the Treasury, was formed headlines promising to introduce a new income tax on large technology companies to compensate them for the low rate of taxation of profits. As documented in several information points, the mechanism could be implemented as early as 2020.
British Treasury Chancellor Philip Hammond in London, Monday, October 29, 2018 (AP Photo / Frank Augstein)
Surprisingly, it is the United Kingdom, not, say, France, now is racing to tax large technology companies. But because Philip Hammond's proposal has caused quite a stir, it is worth remembering a few key facts about political economy taxation of enterprises in the digital era.
Above all, the wildest motions on the digital tax front are sometimes taken by the most pro-competitive politicians. The simple reason is that when they lower taxes on rich individuals and corporations in general, conservative politicians often leave their supporters. Despite what many people accept, the majority of voters, including conservatives, enjoy justice and social justice. Above all, they really I do not like that the middle class pays all taxes. And yes, for the Tory minister, it finally turns out to be convenient to address American technology giants to compensate for the actual efforts to reduce taxes on rich and large corporations. It was years ago David Cameron. Now Philip Hammond fills his shoes.
Secondly, there is a problem as to how the US will react. Under Obama, the US reaction to such proposals was always friendly but firm "No". Obama rightly so I saw Silicon Valley as a powerful ally. They contributed much to the campaign in 2012. They also helped him transform the federal government and improve the situation providing public services. So Obama did not want his friends from the world of technology to be hit too hard by the European tax authorities. And because Europeans were friendly to the Obama administration, it could always be solved. The radical European proposals were eventually stopped in exchange for more constructive discussions under the OECD and G20.
Today the context is completely different. Trump is the president and although he does not like the technology industry, his administration is in principle against the idea of US companies being hit by unilateral tax measures on the European market, which is so important for their profits and losses. If Britain moves forward with Hammond's idea, Trump's administration is likely to take retaliatory measures less friendly than what Europeans have been accustomed to as part of Obama.
Then there is one final catch. It sounds so simple that you can impose new taxes "Search Engines" (ie Google) and "Social platforms" (Facebook). However, taxation remains a domain governed by the rule of law (and fortunately). Taxpayers are not appointed by name. They pay taxes only if they meet certain criteria and some amounts exceed certain thresholds. Therefore, it is highly likely that the tax to be weighed on Google and Facebook will eventually be paid not only (and mainly) by US technology companies, but rather by European technology companies, as well as other older companies which are making more and more companies online.
Adding to this the fact that Hammond tax would be highly distorted by weighing income, not profit (why do we use the same rate for Google and Amazon revenues when its margin is thin, while the first is thick?) And you have a better sense of why this tax will probably never see the light of day. As a Tory government in difficult Brexit negotiations, you simply can not afford to argue with the US government and you risk unintentional consequences for your own tax base thanks to the theatrical and ill-designed attempt of a more populist sound.