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going slightly giddy

Kitty Miv, Editor
18 October, 2018

There'll be a digital tax by Christmas, proclaimed European Commissioner for Taxation Pierre Moscovici last week. Perhaps he needs to brush up on his history. We've heard such bold claims in previous eras. For example, they said that World War One would be all over by Christmas. And it was. Christmas 1918, not Christmas 1914.

Nevertheless, as Christmas 2018 approaches, digital taxation is dominating the international tax agenda. Indeed, it's somewhat like listening to children excitedly discussing their chances of receiving the next new-fangled toy or gadget in their Christmas stockings this year – every government now seems to want a digital tax! The Spanish Government just added one to its 2019 Budget wish list; the UK isn't quite sure yet whether it really needs a digital tax, but it certainly would like one; and at the beginning of October, the Australian Government wrote to taxpayers asking very nicely if it could have a digital tax. India on the other hand is in no mood for asking, and it isn't waiting around for an OECD bearing gifts either. It's building its own, in the form of proposed new digital permanent establishment rules.

Of course, we're well aware that the EU really, really wants a digital tax. So much so that it's prepared to accept an untried and untested temporary prototype just as long as it can get its hands on one.

But not everyone is impressed; there's always the bah-humbug brigade, the proverbial Christmas scrooges. Enter the party-poopers: Ireland, the Czech Republic, Finland and Sweden. At least, this is according to a report last week by the Irish Times – I don't wish to cast aspersions. So, what's their problem? Well, they're worried that, like a new video game, the digital tax as envisaged won't be compatible with existing legal operating systems. All manner of things could go wrong as a result. Tax treaties will be broken, international obligations flouted, companies doubly taxed; stuff that cannot be fixed merely by switching it off and switching it on again.

They've got a point. Companies don't tend to rush out their latest innovations. They're tested thoroughly before being unleashed on the market. Therefore, perhaps Moscovici needs to take their reservations about the interim digital tax in particular more seriously.

Moving on, but staying in Europe, and Brexit seems to be doing strange things to people's decision-making. Some of the UK's fellow (for now) member states are tightening up corporate tax regimes and condemning aggressive tax competition. But, since the UK's decision to leave the EU, they are also falling over themselves to capitalize on the uncertainty generated by Brexit by offering generous new tax breaks. The Netherlands is one such example. On the one hand, it is (as matters stand) offering an expanded dividend exemption from next year, partly in the hope of luring business away from the UK. But at the same time, the Netherlands is proceeding with other measures intended to change international perceptions that its tax regime is set up to encourage profit shifting. The two goals hardly seem compatible though – a bit like bolting the back door to tax avoidance, then flinging open the patio doors to all comers. But that's Brexit for you.

Then there's the strange case of Unilever, one of the UK's largest companies. Jointly headquartered in the UK and the Netherlands, it had appeared that latter had been successful in wooing the firm away from London with the promise of tax perks and a life in the EU. Then the shareholders revolted, and the whole thing was called off. Emotions are obviously running high. Who knows, if not for Brexit, it was a saga that probably wouldn't have played out at all, at least not so publicly.

Even stranger perhaps was the reported response of Dutch Prime Mark Rutte to Unilever's u-turn. This in effect went something like "if Unilever doesn't want our tax breaks, then nobody can have them!" Because according to Rutte, the Government will now go away and rethink its entire corporate tax strategy, including the flagship dividend tax proposal.

A little impetuous perhaps? You don't have to abandon the party just because one guest decided not to show up, even if the invitee in question was going to contribute to proceedings in a significant way. Just be a little more imaginative with regards to entertaining your remaining guests.

Is this the Brexit effect we're witnessing? Is it all too much for people to process? Are we all going slightly giddy with the fear and the excitement the uncertainty brings? I need a lie down... wake me up in April 2019.

About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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