where to start?
Kitty Miv, Editor
07 November, 2018
With another exciting period having passed in the world of taxation, there certainly is never a dull moment! What with more tax cuts possibly on the way in the United States, new developments on the digital tax front and new trade agreements galore, it's difficult to know where to start!
Let's begin with arguably the most controversial recent announcement, the United Kingdom's 2018 Budget. Chancellor of the Exchequer Philip Hammond has apparently acquired the nickname in parliamentary circles of "Spreadsheet Phil." This is suggestive of a man who likes to play around with numbers. A lot. Not the best company at parties, perhaps. A meticulous planner maybe, not given to spontaneous policy announcements. Except that he kind of is. His first Budget as Chancellor was marked by dramatic about-turn on self-employment taxation, and his latest Budget, announced October 30, by a digital services tax, set to commence in 2020. Incidentally, Hammond moved Budget day forward by one day so it wouldn't be announced on October 31 – Halloween – and suffer a pun-fest at the hands of the media. As it turned out, the 2018 Budget was largely free from tax horrors. But many businesses will surely have been a least a little bit spooked by the proposed digital tax. (Sorry).
For example, while praising the overall tenor of Hammond's Budget, the British Chambers of Commerce warned the Government to "tread very carefully in introducing a digital services tax."
"Tight classifications of exactly which businesses will fall under the scope of these new rules are important to avoid unintended consequences or confusion for the industry as a whole," it said. Hmm. Where have we heard those words before?
What's more, it certainly seems unhelpful that, even though the UK may no longer be a member of the European Union by the time the tax is introduced, Hammond has chosen to deviate from the outlines of the EU's own proposals for an "interim" digital services tax.
However, most of the outrage about Europe's haste to legislate in this area is coming from the western side of the pond. In the last couple of weeks alone we've seen no less than Treasury Secretary Steven Mnuchin, the Senate, the House of Representatives, and the US Chamber of Commerce issue strongly worded protests against such measures. These taxes, they have said, will affect a group of mostly US companies, while departing abruptly from long-held norms in the area of international taxation.
One wonders, therefore, what impact this growing digital tax divide will have on attempts to bring about a more harmonious transatlantic trading environment. Maybe this is one fight that the EU simply cannot win either way.
Onwards, and since I referenced the possibility of future tax cuts in the US at the top of this week's edition, it would be remiss of me not to follow up further. But, really, there's not a great deal to say at the moment, the main talking point being the fuzziness of President Donald Trump's ill-defined proposed "10 percent" tax cut for the middle class. Notably, despite probably not knowing himself what President Trump means by "10 percent tax cut," chairman of the House tax-writing panel Kevin Brady (R-TX) has enthusiastically endorsed the idea, as evidenced by the joint statement issued by the White House and the Ways and Means Committee last week. This shouldn't come as much of a surprise since both men are batting for the same team. But surely the timing of the announcement – a few days before the key mid-term elections – can't be completely coincidental. Cynical? Moi?
Now, I hope you've been paying attention to recent trade developments. For there has been much to absorb in recent weeks. So I'm going to end this week with a little test: hands up those of you who know what the CTPP is? Anyone? No? Don't worry, this test won't be graded.
Even though trade issues are on the tip of everyone's lips, the CTPP (Comprehensive Trans-Pacific Partnership), used to be the plain old TPP, or Trans-Pacific Partnership. Yes that's right, the TPP managed to survive the withdrawal of the US, reinvent itself, and add an extra letter to its abbreviation for good measure. And after Australia recently became the sixth country to ratify the updated agreement, it is set to enter into force on December 30, 2018.
The TPP has been largely forgotten about by most of the world since President Trump made withdrawing from it his first executive act in January 2017. But even without US involvement, the TPP is still an FTA of potentially great economic significance. A marketplace of 500m consumers, the combined GDP of the 11 TPP nations is close to USD10 trillion. Australia alone expects to see net annual benefits of AUD15.6bn (USD11bn) a year due to its membership.
However, perhaps we shouldn't rule out the US rekindling its relationship with the TPP. After all, the Trump administration has just announced its intention to cosy up with Japan and the EU, of all economies, as well as the UK, with new trade talks to begin soon. Indeed, it wouldn't be too much of a surprise if the US seeks to do a deal with China the way things are going. So watch this space.
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