UK Tax Demand Sullies US 'Special Relationship'

by Robert Lee, Tax-News.com, London

01 September 2009

The transatlantic ‘special relationship’ has been unable to prevent a falling-out between the UK and the US over a tax bill that Whitehall insists Washington owes on a new embassy building.

According to the Financial Times, tax officials in the UK are insistent that the US government must pay up to GBP50m (USD80m) in value-added tax (VAT) on its new embassy building, due to be completed in 2016, but Washington insists that it is immune from all foreign taxes under diplomatic protocol.

The US embassy, currently located in the well-heeled environs of London’s Mayfair district at Grovesnor Square, is due to move to the less auspicious Battersea area on the south bank of the Thames when a GBP275m hi-tech terrorist-proof new building to be known as ‘the iceberg’ is constructed. The UK Treasury, however, is apparently of the view that tax is due under the UK’s VAT ‘place of supply of services’ rules.

The US government has also come under attack from the London authorities for failing to pay the city’s infamous ‘congestion charge,’ incurred when embassy staff travel into the charge zones. The US government argues that since the congestion charge is effectively tax, embassy staff don’t have to pay it. London’s local government, however, sees things quite a different way, arguing that the system is a charge for services rather than a tax. Embassy staff have reportedly run up GBP3.5m in unpaid congestion charges.

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