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A few thoughts on the Digital Sales Tax row (and not focussing on the 'this independent trade policy thing is not as easy as it was cracked up to be' point).

There’s immense political pressure to tax companies that have very high levels of turnover in your country. /1
It is an issue that unites the anti-capitalist left with large and small domestic businesses. The role of a Treasury Minister trying to explain why a big US tech company is not paying much corporation tax is a very difficult one, believe me.
But there are a few problems. First, corporation tax is a tax on profits. Some of these companies are immensely profitable, but not all of them are, and not just because of tax avoidance. Amazon, for example, has traditionally focused on market share not profits. /3
Second, where should the profits be allocated? The international tax system basically attributes profits on the basis of where the value is created not where the revenues are raised. /4
To give a simple example, the profits of a French wine producer exporting to the UK belong in France, even though the revenue is in the UK. Nobody has much of a problem with that. /5
Working out where the value is added for a tech company is more complex but, in reality, much of it will be in the US where most of the clever techy stuff is done. /6
But, as everyone knows, it’s not properly taxed there. US tech companies have been able to engage in aggressive tax avoidance to park their overseas profits (that is, profits from revenue overseas) in low/zero tax jurisdictions./7
If the US system had worked properly, more of these companies would’ve paid tax - but not in the UK. There’s a genuine competition point here (the US tax system essentially involves an export subsidy, it taxes domestic activity but not profits from overseas)./8
But shouldn’t we tax more on the basis of where the revenues come from? That’s the direction the OECD is going and this is probably consistent with what most people think is fair. /9
Is this in the UK’s long term interests? We’re rather good at creating value - the creative industries, pharmaceuticals, tech, professional services etc. In a world of an ever growing middle class, there are big opportunities for us in the decades ahead in China, India etc. /10
Wouldn’t we rather be able to tax the profits where the value is created not where the customers are? In the long term, that might suit us better.

Final point. International cooperation in tax is important. Ideally you want to tax profits once. /11
Without cooperation you might get double taxation and barriers to trade. A properly functioning international tax system is an important requirement for global free trade.

So the Government faces a tricky situation. The political pressure to bring in the DST is strong. /12
The Govt won’t want to be seen as being bullied by the US. And they’d like the revenue. But nor is it in our interests to weaken international cooperation on tax. /END
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