Experts pour cold water on digital services tax proposal

Onlookers predict tax on tech titans will be ineffective 

Credit: Matthew Murdoch/Flickr/CC BY 2.0

Big tech companies could wriggle out of the government’s planned digital services tax, experts have warned.

Chancellor Philip Hammond used last week’s Budget to outline the new tax, which is due to come into force in April 2020 and is expected to raise £400m-a-year for the public purse.

The proposed tax comes after years of criticism that large tech companies such as Google, Amazon and Facebook pay very little UK tax in relation to their revenues in this country.

But the plans have been questioned by tax experts, with accountant and tax-avoidance campaigner Richard Murphy telling The Times: “It’s gesture politics and a missed opportunity. A tax of 2% to raise a predicted £400m is insignificant in the context of these companies’ activities and the wider budget.”

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He added that enforcement of the tax was likely to be difficult since it required knowledge of each company’s UK income, which is not a statutory accounting measure or necessarily available in public accounts.

Daniel Bunn of the Washington-based Tax Foundation meanwhile told the paper: “If the UK government goes through with this and puts all the details out there, then during that process you will see as many firms as possible trying to define themselves out of the definitions the government has set for the tax . . . it’s unlikely they will take this lying down.”

Unveiling the plans, Hammond said it was “only right that these global giants, with profitable businesses in the UK, pay their fair share towards supporting our public services”.

Countries have been grappling with ways to gain revenue from technology companies, with politicians in Spain considering a 3% tax on the ad and sales revenue of digital platforms, and the European Commission floating a similar tax.

But the Information Technology Industry Council, which represents big tech companies including Google and Facebook, said: “Imposing a digital tax could create a chilling effect on investment in the UK and hinder businesses of all sizes from creating jobs.”

Under Hammond’s proposals, profitable firms with global turnover of £500m-plus – including UK sales of at least £25m – will be taxed 2% of their UK revenue generated through “certain digital platform models”, including online marketplaces, social-media platforms, and search engines. The chancellor pledged that the levy would not disadvantage UK technology start-ups, nor will it penalise consumers buying goods and services online.

Sam Trendall

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