Tax on tech giants ignites UK-US trade war fears

BORIS Johnson and Donald Trump have been urged to “redouble their efforts” to avoid a damaging trade war after tensions rose when the Prime Minister made clear he would defy Washington and press ahead with a digital tax on US tech giants.

But fears are now rising that Scottish exports like whisky, cashmere and salmon could be hit with even harder punitive American trade tariffs.

The US administration has already slapped a 25 per cent import tax on Scotch and cashmere as part of a trade dispute with the EU over subsidies to the Boeing aircraft-maker.

Britain has pledged that from April a 2% levy, dubbed a “Google tax”, will be placed on the revenues of search engines, social media platforms and online marketplaces which derive value from UK users. The reason is that there is public concern that such highly profitable international high-tech companies are getting away without paying their fair share of corporation tax.

Despite pressure from the US

President – who is expected to meet with Mr Johnson in Washington next month – Downing Street made clear the Government would press ahead with the tax in the absence of a global agreement.

Speaking at the World Economic Forum in Davos, Switzerland, Chancellor Sajid Javid confirmed the digital services tax, which he described as “proportionate”, would come into force in April.

“It is a tax that is deliberately designed as a temporary tax; it will fall away once there is an international solution,” he explained.

However, sitting next to him on a panel, US Treasury Secretary Steven Mnuchin warned that if the UK went ahead with the digital tax, America could retaliate.

He said: “If people want to just arbitrarily put taxes on our digital companies, we will consider arbitrarily putting taxes on car companies.”

The US and France have announced a truce over President Emmanuel Macron’s plans to introduce a similar tax after

Washington responded with a threat to slap punitive tariffs on products including French cheese and wine.

Referring to this, Mr Mnuchin said: “I’m sure the President and Boris will be speaking on it as well; as the President did with Macron.”

He argued a digital tax was “discriminatory in nature” and pointed out that the US was participating in the OECD process to find a solution.

OECD Secretary General Angel Gurria said 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”.

The UK, he insisted, should

“absolutely hold fire and contribute to a multilateral solution”.

But Mr Javid stressed there had been a growing disconnect between where customers of online firms were based and where they were taxed.

“This does require an international solution and that is something we all agree on,” he said.

A Scotch Whisky Association spokesman said: “The industry continues to press for the urgent removal of the tariffs on both Scotch and American whiskies. This should be the highest priority for governments on both sides of the Atlantic.”

He added: “All parties should re-double efforts to find a negotiated solution to the trade disputes that have given rise to these tit-for-tat tariffs and ensure that duty-free trade can resume between the UK and the US to the benefit of whisky producers, their employees, the communities we work in, and consumers everywhere.”

Downing Street warned a trade war would cause harm on both sides of the Atlantic.

Mr Johnson’s spokesman said: “Our strong preference is for an appropriate global solution. It has taken too long to address this issue at international level and so we will continue to introduce our digital services tax in April in the absence of a global solution.

“Imposing additional tariffs would harm businesses and consumers.”