Mixed response to new digital tax

Written by Julian Blake, Editor at DigitalAgenda

There has been a mixed reaction from industry experts to this week’s budget proposal for a new digital services tax for big tech business. For those wanting to see the likes of Amazon and Facebook pay their fair share for UK revenues, it is a start – albeit a very modest one.

£275m is a start, but it is a modest one. That’s how much more large technology firms in the UK are likely to have to pay in tax to start with, if the measure announced by chancellor Philip Hammond in this week’s budget, to ensure that “global giants with profitable businesses in the UK pay their fair share”, comes into force.

There’s an “if” in there, because international negotiations are ongoing between governments around the world on a new global settlement for big tech tax. If they’re settled, Hammond’s measure will most likely be scrapped.

Those pressing for big tech to start paying their way for their UK sales will be encouraged but disappointed at the modesty of the likely tax take. There has been widespread criticism of the low taxes paid by big US firms, especially through corporation tax.

That criticism was shared by the Institute for Public Policy Research and others at DigitalAgenda’s Power & Responsibility Summit in London earlier this month. Critics say big tech avoids paying enough corporation tax by posting low actual profits, as opposed to revenues.

In his budget statement on Monday, Hammond said that a new 2% digital services tax would be introduced in April 2020, following consultation. The new tax, said Hammond, would target “established tech giants” rather than startups, by limiting the new tax to those with global sales revenues of over £500m.

“It is clearly not sustainable or fair that digital platform businesses can generate substantial value in the UK without paying tax here,” Hammond said in his statement. Campaign groups say five big firms could be paying the exchequer £1bn more in total every year.

Big tech’s UK corporation tax settlements this year included £50m by Google and just £15.8m by Facebook – despite the latter drawing revenues of £1.3bn.

The defence put up on tax by big tech firms is that their global tax settlement needs to be addressed, rather than just the local taxation imposed by individual countries.

Internationally, the 36-country OECD and European Commission have been negotiating a international settlement on big tech taxation, to reflect global revenues, but progress has been “painfully slow”, said Hammond. The Treasury hopes that the new global agreement will be in place by 2020, meaning the UK tax may not need to be imposed.

The Treasury forecasts that the new digital services tax will generate £275m in 2019/20, rising to £370m, £400m and £440m in years to come. The 2% charge would be imposed on UK revenues of what Hammond called “specific digital business models”, ie search engines, online marketplaces and social media platforms.

Reaction to the plan has been mixed, with some opposed and others concerned it does not go far enough. Big tech itself was opposed.

Google UK public policy manager Katie O’Donovan told the House of Lords’ communications committee that “the chancellor referred to his proposals as part of setting a timeline for international action and that’s always been something that we’ve supported.”

“A multilateral international solution is one that will be really meaningful with long-term significance,” she said.

Tech London Advocates and Global Tech Advocates founder Russ Shaw said: “The chancellor’s plan of Britain tackling ‘big tech’ taxation in a unilateral capacity is the wrong approach to take. As much as a digital tax is a prudent step – especially in a time when new frameworks are required to a fit a digital economy – exposing the UK in a such a way would be detrimental to our economy and international stance.

“Brexit, with all its uncertainties, is bringing enough economic disruption as it is,” Shaw added. “Tackling the digital tax question without coordinating efforts with the US and EU as key global partners, will only further entrench Britain in an isolationist position we cannot afford.”

PwC head of tax policy Stella Amiss told the BBC that the new tax was “trailed as a step towards levelling the playing field between online retailers and the high street. But it is much more than that. Working out who is taxed and who isn’t in the digital economy is no mean feat when all businesses operate in an increasing technological world.”

Politicians have taken a more predictable line, with Labour MPs describing the current tax take as “outrageous”. Deputy leader Tom Watson said the new measure was “pittance for these massive international companies”, and said the percentage of tax paid by the big tech five had halved since 2013.

Given the low amounts of tax take projected from Hammond move, it seems clear that large technology firms could be squeezed much more. As it is, big tech is hardly likely to be quaking in its boots. Fears on investment at this rate are likely to prove unfounded.


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