This week in tax: Deliveroo's IPO flops
This week saw Deliveroo’s IPO flop despite high hopes among investors looking to capitalise on the boom in demand for takeaways, while the US and the UK clashed over digital tax.
Food delivery app Deliveroo lost more than a quarter of its value on its first day of trading. The initial public offering (IPO) was expected to raise anywhere from £7.6 billion ($10.4 billion) up to £8.8 billion at £3.90 to £4.60 a share. But it was not to be.
Instead, shares in Deliveroo were down 26% on March 31, wiping away almost £2 billion from the lower market capitalisation of £7.6 billion. Short sellers were blamed as Goldman Sachs and JPMorgan desperately tried to shore up the stock.
One trader called it “the worst IPO in London’s history”. This is yet another blow to the gig economy and one of its best-known companies. Both Deliveroo and Uber have recently suffered landmark court defeats over their employment practices.
The Dutch Court of Appeals ruled in February that Deliveroo couriers are employees, not self-employed workers, reinforcing the Supreme Court decision issued in November 2020. Meanwhile, the UK Supreme Court reached a similar conclusion about Uber in February.
“This potentially creates a smorgasbord of problems for Uber from a tax perspective,” Richard Taylor-Whiteway, head of tax at Brockwell Capital, told ITR at the time.
The last couple of months have been tough for Deliveroo and Uber, but both companies remain committed to their competitive strategy. Demand for takeaway dinners is going to remain high – at least until the COVID-19 pandemic is contained.
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Renewed trade tensions over digital tax
The Biden administration has warned the UK government that it could raise tariffs on British goods imported to the US in retaliation to the UK’s 2% digital services tax (DST). The Johnson government is going ahead with the DST despite US opposition.
However, the UK is also keen to avoid tariffs on British exports that could harm the economy. “I would urge [the US] to desist from any tariff raising,” Liz Truss, UK international trade secretary, told The Financial Times.
The US Trade Representative’s office (USTR) has drawn up a list of tariffs on goods including ceramics, make-up, overcoats, games consoles and furniture, in a bid to recover the $325 million that the DST will cost US technology companies.
The UK’s DST applies a 2% levy to the revenues of search engines, social media platforms and online marketplaces that derive income from UK-based users. The conflict is about international taxing rights and fiscal sovereignty.
The US government has a consistent record of defending the interests of Silicon Valley technology companies from unilateral tax measures. The Trump administration made ‘trade wars’ a defining part of its strategy in international relations, but the issue crosses political divisions in the US.
The USTR is also looking into retaliatory measures against countries including India, Italy, and Turkey, after it found DSTs in these countries to be discriminatory against US companies like Facebook and Apple. The US had previously threatened France with a 25% tax on French imports, but was persuaded in January to suspend the tariff.
Many observers speculated that the UK DST may become a bargaining chip in trade talks. The Johnson government wanted to secure a US free trade deal as part of its exit strategy from the European Union.
However, the Biden administration has its own agenda to fulfill, and the timeline for a trade deal may be pushed back until 2023. The US has mid-term elections scheduled for 2022, and the COVID-19 pandemic is the priority of all policymakers.
“The UK has always been clear that securing a mutually beneficial and comprehensive deal is more important than reaching agreement by any fixed date,” a spokesperson for the UK’s Department for International Trade told the press.
The USTR office has not responded.
Next week at ITR
Next week ITR will be working towards the spring issue of the magazine. The cover story will showcase the results of our survey on the tax impact of COVID-19. It will feature interviews from leading tax directors working in-house at some of the biggest companies in the world.
The team will be looking at the rising support for carbon taxes among energy companies and whether there is a global shift in favour of green taxes.
ITR will be revisiting some of the biggest indirect, direct, and transfer pricing tax disputes and cases of the last three months, such as Supreme Court decisions in Brazil and India, as well as the Cairn case and the Uber judgment in the UK.
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