The world is heading for a digital tax war, even if hostilities are on hold

Pressure from the Trump administration has deterred France from going after the big tech companies, writes Ben Chapman. But the UK is holding firm – for now

Many countries are on a collision course with Trump (AFP/Getty)

The question of how to stop big tech firms slashing billions off their tax bills is threatening to escalate into a full-blown tax war.

There are few easy ways forward, despite the fact that some form of de​tente between two of the potential belligerents, America and France, appeared to have been reached on Thursday.

In the face of US pressure, French finance minister Bruno Le Maire agreed to hold fire on France’s tax on large tech company revenues which was aimed squarely at the likes of Google and Amazon.

After Washington threatened retaliatory tariffs the two sides agreed to support international efforts co-ordinated by the Organisation for Economic Co-operation and Development (OECD), instead of going down the unilateral route.

But Trump’s administration has been doing its best to hobble that process for some time.

The OECD is seeking what’s known as a unitary approach that would see tech giants taxed proportionately in the countries where they actually generate revenues, rather than squirrelling profits away in Bermuda or Ireland.

Broadly, this is what almost everyone agrees to be the sensible approach, ending the obvious absurdity and unfairness of the current system.

But reaching a global agreement on a formula for how this will work in practice appears a long way off.

The US, whose companies benefit most from the status quo, is saying that any unitary agreement reached by the OECD should be voluntary, which would make it essentially useless. A voluntary tax is no tax at all.

It is pushing instead for a reliance on “pillar two” of the negotiations, which is a fall-back option mandating a minimum global tax rate on corporate profits of 10.5 per cent (the lowest possible rate available in the US).

But this is far from a satisfactory solution. The rate is lower than that available in Ireland for example and would hardly repair the hole blown in national exchequers by tech firms accounting ruses.

People close to the negotiations suggest that there is little hope of an agreement being reached this year.

So France’s approach may be a smart one. It has not backed down on the tax, and companies will still begin accruing bills for it but they won’t be asked to pay if an international tax is agreed on.

More than a dozen countries are also pushing ahead with their own digital services taxes. The Czech Republic has approved a particularly punchy 7 per cent tax on digital revenues within its borders, for example.

The UK’s 2 per cent tax is due to come in in April, with payments due from next year. It is unlikely to be taken to kindly in Washington during talks over a much-heralded US-UK trade deal. Trump’s treasury secretary Steve Mnuchin has already said the US considers the tax to be “discriminatory”.

However, for Sajid Javid to back down would be an embarrassing capitulation on a manifesto pledge and one that is apparently very popular among the kinds of voters the Conservatives won over at the last election.

All eyes will be on his March budget for signs of a change of tack or confirmation that things are going ahead as planned.

So the situation remains that an increasing number of countries are on a collision course with Trump who has made a habit of hitting opponents, notably China, with large tariff increases. The EU has said it will retaliate, meaning the situation could quickly escalate.

Messers Javid and Le Maire may well be hoping that November’s US presidential election, or indeed the present impeachment proceedings against Trump, make things a little easier for them.