OECD could persuade UK to drop digital tax – and thereby avoid US threats | Nils Pratley


Here’s a ladder, Mr Javid, would you like to climb down? That was not, obviously, how the head of the Organisation for Economic Co-operation and Development pitched his hope that a global agreement on taxing technology giants will be in place by the end of the year. But one can sense how events might develop.

The UK could join France in delaying its go-it-alone digital levy on the likes of Amazon, Facebook and Google. The rationale would be the OECD’s fresh confidence that 130 countries will soon agree on how to tax all shape-shifting multinationals. In that way chancellor Sajid Javid could prevent US treasury secretary Steven Mnuchin from carrying out his dramatic threat to whack tariffs on UK-made cars if the US tech brigade gets hit.

Two obstacles lie in the way of such a fudge, but neither seems insurmountable. The first is the Tory party’s manifesto, which was adamant that the UK levy would happen, as Javid himself has been this week. “Major multinational companies should pay their fair share of tax. As part of our approach, we will implement the digital services tax,” said the document.

Implement when, though? Everybody has assumed the digital tax would start in April, after formal announcement in the budget in March, but Javid could decree that a French-style delay in collecting the tax is now preferable. It would be a U-turn, but not a screeching one.

The other hurdle is this: will the OECD deliver the comprehensive rewriting of international tax rules that its secretary-general, Ángel Gurría, is now promising? Confidence is certainly higher. Mnuchin, in striking a truce with France, seems to have dropped his deal-killing demand that any agreement should be optional.

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On the other hand, the OECD has been dancing around this territory without success for years. Almost everybody thinks 20th-century tax rules don’t work in the digital age, but the tricky part is defining a minimum level of taxation on multinationals, and deciding who collects what. There is little clarity on that score.

Still, until the next breakdown in talks, the OECD’s optimistic tone has created a perfect excuse for Javid to climb down. Despite the fighting talk this week, he’ll surely take it.

‘Back on track’ Asos still needs to prove itself

Before joining the City’s rush to declare that the online fashion retailer Asos is “back on track”, it’s worth asking what that correct course is supposed to mean. It certainly doesn’t imply that Asos is achieving fat profit margins from shifting huge quantities of cheap clothes.

Thursday’s update was primarily a sales report: 20% growth in the last four months of 2019 as Asos embraced Black Friday bedlam. Fine, but an “unchanged” outlook for the full financial year suggests profits of roughly £55m from revenues of £3.1bn. At the operating level, the profit margin would be a thin 2%.

Half a decade ago, before it launched an enormous investment programme, Asos management used to talk about reaching 6%-8%. These days the chat is about when 4% might return. It’s achievable, said finance director Mat Dunn, but he wouldn’t like to say when.

After two thumping profits warnings in the past 12 months, investors are clearly happy that the various woes with warehouses are over. In that sense, yes, Asos no longer looks lost. It’s why the share price has improved from £22 last July to £33.

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Only two years ago, though, the shares were £75. For that level even to become a possibility again, Asos needs to show it’s not a permanently low-margin operation. It’s not there yet.

LC&F scandal won’t stop Bailey taking top Bank of England job

Will Andrew Bailey lose the governorship of the Bank of England because of the London Capital & Finance scandal? Not a chance. The Financial Conduct Authority, on Bailey’s watch, blundered appallingly with the failed mini-bond outfit, but the Treasury will have assessed that his personal embarrassment is bearable.

That embarrassment, though, deserves to be turned to maximum. Some of the tales told by LC&F victims at Thursday’s meeting were shocking. The FCA looks to have been clueless.



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