Britain and the United States could be on a collision course over taxing internet giants.
Draft legislation introduced Thursday in the United Kingdom would impose a 2% tax on local revenue of large search companies, social media platforms and online marketplaces, starting in 2020.
The proposal is very similar to a 3% tax approved this week by French lawmakers that has drawn a rebuke from the Trump administration, which says it may “unfairly target” US companies.
Both pieces of legislation apply only to the biggest tech companies, many of which are American. Facebook, Amazon and Google owner Alphabet are all in the firing line.
The United States responded to France’s plan by triggering a so-called Section 301 investigation, which could lead to retaliatory tariffs on French goods. The United Kingdom could be subjected to similar treatment.
An inquiry targeting Britain would further strain relations between Washington and London, which have been tested in recent days following the leak of UK diplomatic cables that were critical of President Donald Trump.
Asked whether the UK government was concerned about a Section 301 investigation, a spokesperson for the UK Revenue and Customs department declined to comment on “what another country’s government might do.”
The United States Trade Representative did not respond to a request for comment.
Instead of imposing their own taxes, the United States wants countries to wait for a global corporate tax overhaul to be hammered out.
G20 finance ministers in June broadly supported a plan developed by the Organization for Economic Cooperation and Development to overhaul global corporate tax rules and address challenges in taxing digital companies.
But the plan is still years away from implementation.
The UK government says that while it supports global tax reform efforts by the OECD and G20, it will move forward with its own plan.
“The government still believes the most sustainable long-term solution to the tax challenges arising from digitalization is reform of the international corporate tax rules,” the UK government said in a statement.
Once an appropriate international solution has been found, the UK would drop its own tax, the government added.
Brexit may complicate plans to implement the tax, however.
UK Prime Minister Theresa May is stepping down, and it’s not clear when — or if — Brexit will happen, and on what terms.
Her likely successor, Boris Johnson, has adopted a “do or die” approach to Brexit, saying it must happen on October 31 with or without an exit deal. Johnson has backed new taxes on tech companies.
“We’ve got to find a way of taxing the internet giants on their income, because at the moment it is simply unfair,” Johnson said earlier this month, according to Reuters.
There is a chance, however, that a digital tax becomes part of a larger negotiation over trade. Britain is already laying the ground work for a trade deal with the United States, with talks likely to pick up pace following Brexit.
