During the budget, Chancellor Phillip Hammond announced that behemoth online businesses such as Facebook, Amazon and Google will finally face digital service tax. However, recent outpour from the White House reveals, not if Trump has anything to say about it.
The budget delivered at the end of October, announced a 2% digital tax on major firms, with the intention of raising more than £400 million (($512 million) annually based on current revenues. The Chancellor announced his decision to go it alone on his mission to implement the New Digital Service Tax, of which disgruntled EU states whom had not yet come to a decision, prior to the budget. Thus Hammond stated “we cannot talk forever” and suggested that the law was subject to developments further along the line – the new digital service tax is not due to come into effect until 2020.
The new tax law will strictly target tech businesses with a turnover of more than £500m and is set to alter the way in which the richest, online companies are taxed. As, as it stands, the taxing system for digital retailers is particularly ambiguous; the amount of tax collected from online businesses is based entirely on accumulated profits, however this is dependent on what the company accounts as ‘profits’. Additionally, tax-error discrepancies are a common issue when UK profits are not being recorded, despite the purchase of the digital services occurring from within the UK.
Following the budget, much controversy has loomed over the Chancellor’s unilateral decision to implement a new Digital Tax law with or without support from the EU. Hammond’s isolated approach instilled fear in supporters, who fretted over EU states taking the Chancellor’s actions to heart. Despite such risk, the UK have followed suit and taken a leaf out of Spain and Italy’s books, implementing their own digital service prior to the EU global agreement taking place.
The OECD in their 16 March interim report on tax challenges arising from digitalization, noted that: “There is no [global] consensus on the need for, or merits of, interim measures, with a number of countries opposed to such measures on the basis that they will give rise to risks and adverse consequences.”
The clock is ticking
The EU commission would ideally love to find a multilateral international solution to initiating the new Digital Service Tax, however the decision must be agreed by all 28 member states and Trump’s distaste for the motion, is having an influential impact on EU states.
US multinational organisations often contain their headquarters in Europe, to shelter their overseas profits from high US Tax rates, and with this considered, the introduction of the new tax law set to take place doesn’t bode well with the US. Donald Trump’s White House has publically cited the tax law as “an attack on American companies.” Similarly, Ireland, an EU state that hosts some of the biggest tech firms such as Apple, Facebook and Google, have conveniently not taken the new initiative well either, opting to revolt against the government incentive alongside the US.
Weary of political upheaval, some EU states are publically declaring their anti-support for the new tax law, after being deterred by the US’ disapproval for the notion, including Sweden and Denmark. The UK are aware they must tread carefully too, with Brexit trade negotiations pending, the British government cannot afford to pose damage on their relationship with the US.
Countries such as Germany and France whom had jointly agreed to the service tax already, more than 18 months ago, are choosing now to strategically hold off. In hope of a global decision being made before having to conduct a tax service of their own, the tax incentive has become a waiting game for EU states, for if a global solution isn’t made before 2020, then the EU’s digital tax law will automatically take effect.
With much speculation and political fear surrounding the new digital service tax, Hammond points out to the EU, that the US itself has a tax reform act which is “arguably discriminatory towards any non-US companies.”
Additionally, the clock is ticking. French Finance Minister Bruno Le Maire, who is anxiously waiting for the OECD to amalgamate and come to a conclusion, has warned that failure to officially agree on a deal by year-end would “weaken us all”, “especially if that led to separate national taxes that would leave the bloc’s single market, fragmented.”
Is the digital service tax an unreasonable ask from multi-billion pound tech giants?
Many don’t think it is. The tax man has been after the tech giants for quite some time now, especially after years of booming search engines and social-advertising platforms, however incorrectly taxing SMEs was a present concern.
Large international online firms have been annually criticised for insufficient tax payments, with many MPs and business owners still deeming the new tax law incentive as insubstantial. Labour’s Shadow Secretary of State for Digital, Culture, Media and Sport, Tom Watson said:
“The measure announced today is pittance for these massive international companies…The new tax isn’t even set to be implemented until 2020 at which time the tech giants will start to enjoy a 2% cut in their corporation tax rate. The lack of ambition in this announcement is derisory.”
According to statistics, a whopping “51% of UK consumers prefer to shop online than in store”, a feat, ideal for online beasts, but not for independent brick-and-mortar retailers who are consistently hit with less consumers and larger tax fees than tech giants. The new tax law will help balance tax inequity between online and offline firms, the insignificant tax fees paid out by tech stores, perhaps responsible for the demise of high-street retail stores.
Research from CompanyDebt, claims that if the new tax law would have been in place in 2017, Google, Amazon, Facebook, Apple, Ebay and Twitter would have contributed over £409 million to the economy already.
Do you think the new digital tax law is reasonable or unsubstantial? Have your say; comment below with your thoughts.
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About The Author
Marketing Executive and Part-Time Copywriter. If I'm not working on our next big marketing project, you'll probably find me outside, basking in the sun or walking the dog. Learn more about Liam.