Hammond: UK Might “Go it Alone” on Digital Services Tax

by Startacus Admin

A couple of weeks ago, UK Chancellor Philip Hammond chose his Conservative Party Conference speech to suggest that he wouldn’t wait for an international consensus on digital services taxation. Bradley Post, Managing Director of RIFT Tax Refunds, shared all on what this might mean...

It was a surprising statement for many, but the dust it’s kicking up has been all-too predictable. Arguing that “global internet giants” like Facebook and Amazon must contribute fairly to UK public services, Chancellor Philip Hammond chose his Conservative Party Conference speech to suggest that he wouldn’t wait for an international consensus on digital services taxation.

What did he actually say?
First off, this wasn’t any kind of specific announcement. It was more of a general statement of position. If an international agreement on taxing tech giants can’t be reached any time soon, the UK is willing to do it unilaterally. The speech did hint that the Treasury might start playing as tough as it’s talking in the upcoming Budget, so more specific details could be on the way soon.

What’s the background to this?
Basically, there’s a feeling in some circles that huge tech firms like Amazon have been getting away with fiscal murder. Amazon’s UK division coughed up about £4.6 million in the last tax year on profits edging toward £2 billion. The year before, Facebook raked in £842.4 million, but paid out only £5.1 million in tax.

What’s the up-side?
Well, for one thing, tech giants have a way of running rough-shod over their competition. There’d probably be some celebration in the brick-and-mortar retail sector if Amazon had to bite a slightly larger calibre tax bullet. Without a lot of physical premises to pay business rates on, online giants arguably aren’t pitching in fairly toward public services. Business is changing, and tax law is struggling to stay relevant. Aggressive tax avoidance has become the name of the game for some of its biggest players.

What’s the down-side?
The tough thing about sledgehammer swings on tax is that they crack a lot of unintended nuts when they land. While Mr. Hammond makes it clear he’s got Big Business firmly in his crosshairs, it’s very often the smaller enterprises that end up taking the bullet. SME tech firms survive on innovation – but that very dynamism and agility can be stifled in a heartbeat by a heavy-handed tax or regulation framework. With an uncertain Brexit still to look forward to, innovation needs to be rewarded and invested in, rather than choked off.

Is it time to press the panic button?
No, it’s time to take a breath and look at what we actually know. Mr. Hammond is still carefully talking up the better option of a full international agreement on any digital services tax. One major roadblock there seems to be the United States’ argument that digital businesses shouldn’t be singled out unfairly. Since any new system would be targeting the giants, until we know more about where the lines are drawn it’s a little too early to fret about the impact on SMEs. It’s definitely worth paying attention, though. We’ve already seen with VAT MOSS that the needs of smaller firms aren’t always considered when new rules come in.

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Published on: 12th October 2018