1. OK. So let's talk about what’s going on between France and the US, and how it effects the UK...
2. France passed a new tax called the Digital Services Tax (DST) in July. 
3. The tax pre-empts an OECD initiative called the Base Erosion and Profit Shifting (BEPS) project. A project created to prevent multinationals from taking advantage of tax havens.
oecd.org/tax/beps/beps-…
oecd.org/tax/beps/beps-…
4. As I understand it BEPs has been watered down, and part of that is because redefining ‘permanent establishment’ is a big thing. It dates back to when a young Kate Hoey was first entering parliament.
5. Permanent establishment is used to protect businesses against double taxation and defined in Article 5 of the OECD Model Tax Convention.
6. The problem isn’t just with the fact it is double taxation, it also comes down to implementation, and to understand the problem we can look at the EU's attempt to legislate.
7. The Commission were very clear that at certain thresholds on the particular services targeted, it would, for the most part, only tax companies from the United States.
8. Consequently, multiple arguments have been put forward regarding the tax being discriminatory in nature.
One being it violated the national treatment of its service schedules under GATS XVII. (You don’t need to understand this, I’m not sure I fully do)
One being it violated the national treatment of its service schedules under GATS XVII. (You don’t need to understand this, I’m not sure I fully do)
9. Another argument is that the value is arbitrary under GATS X measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination. (Again, you don’t need to understand this)
10. The way it discriminates means DST is likely to be considered a custom duty, and WTO agreed in 1998 not to put custom duties on digital in the Declaration on Global Electronic Commerce. It’s not a permanent agreement, but it does still stand.
11. You don't need to understand the arguments of de-facto discrimination, because in a leaked document from February 2018, the EU Commission were very much of the belief that this tax incorrectly applied becomes discriminatory. Therefore it's a safe assumption that it is.
12. In fact, the longer the EU looked at implementing the tax the more it was questioned.
13. Eventually the EU initiative fell through, as more and more countries decided this wasn’t a great idea.
14. At about the same time, the UK announced their own tax equivalent in their 2018 budget, 😬
15. And US businesses certainly had their say on it
16. Even before the Budget was announced, the US were aware of the UK’s plans and had also identified the Diverted Profits Tax as a problem.
17. And we learn the US also has other issues with the tax in terms of the justification given. At least one of the reports cited by those pushing for the tax doesn't say what they suggest.
18. When the UK came to the table to discuss a future free trade agreement, the country’s whole competence was obviously available, and the US have used that fact to pressure the UK into dropping its plans.
19. But with the EU not implementing DST, France’s competence isn’t on the table in EU-US trade negotiations, and consequently the US only have a few options.
The ‘correct’ one being the WTO appellate body, which is not an option because of the US.
The ‘correct’ one being the WTO appellate body, which is not an option because of the US.
20. Another is a, never been employed, part of the customs code which allows the president to increase income taxes on citizens who come from a country that is unfairly taxing the US.
21. Or, open a 301 investigation which, if it finds the US is facing discrimination, can (and will knowing the current president) result in unilateral action.
22. So, the 301 happened...
23. And despite a 90 day agreement that France and the US would enter into negotiations this August, the 301 investigation ended yesterday.
24. But the EU have previously said that if this did happen, they will all retaliate in the interest of France.
25. On the basis the US are going to target specifically French products with such high tariffs, France may decide it isn’t worth it, but right now it sounds like they are up for the fight.
26. Basically the whole story comes down to this: There are moves in international politics to make major changes to how taxes have been done for a century, but not all countries are agreed that the justification for doing that is solid.
27. In the meantime some countries have tried to pre-empt it with taxes which, for what I understand, the greater majority of people believe go against WTO rules.
28. As far as I'm concerned the US is largely in the right. Had they not been slowly strangling the WTO appellate body, they would be more in the right, but instead we’re doing it the Donald Trump way.
29. France is more likely to keep its tax than the UK, both on the basis that its competence was ring-fenced from EU-US negotiations, and it has the support of the EU so it is in a position to retaliate harder.
30. Unlike the UK which, in contrast, is isolated and all of its competence is on the table in the UK-US trade negotiations.
31. Obviously, the best way to ensure that the UK was able to set the taxes it wanted to set, was to not leave the EU, and then there could have been 28 countries retaliating.
32. And if you want an example of how leaving the EU diminishes its international sovereignty, then I don’t know a better example than what is going on right now.
/End
(No Kate Hoey wasn't in parliament at the time of the League of Nations...)
/End
(No Kate Hoey wasn't in parliament at the time of the League of Nations...)
