Tech giants looking for ways to wriggle out of UK digital tax, watchdog warns
- Reference: 1680697269
- News link: https://www.theregister.co.uk/2023/04/05/uk_digital_services_tax_review/
- Source link:
In a report published today, the Public Accounts Committee (PAC) said that tax receipts for the first year (2020-21) of the UK's Digital Services Tax (DST) – designed as a temporary measure before an international system is introduced – were 30 percent more than the £275 million forecast.
However, the committee said it was concerned the success may mean the tech giants intended to be caught within the regime could use "the huge resources and expertise at their disposal to circumvent the tax."
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The UK tax authority, His Majesty's Revenue and Customs (HMRC), "will need to be ready for that scenario, with robust measures to ensure compliance in the longer term if needed," [2]the report said.
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The DST arose from concerns that tech giants doing business online – such as Amazon, Google, and eBay – are taxed based on the location of the business while they profit from trade with UK citizens online, arguably denying the public sector of rightful revenue and putting UK businesses at a disadvantage.
The Organisation for Economic Co-operation and Development (OECD) is set to introduce its Pillar One rules to tackle this problem globally, but the UK implemented its own tax system as an interim measure.
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While noting the success of the first year, the PAC said HMRC had told it that Office of Budget Responsibility forecasts proved inaccurate because online businesses benefited from COVID-related lockdowns that coincided with the tax's introduction.
[6]US drops tariff threat against nations who dished out digital taxes to American tech giants as OECD members hash out new deal
[7]Nearly 140 nations – from US and UK to EU, China and India – back 15% minimum corporate tax rate
[8]Labour Party proposes raising UK Digital Services Tax (so Amazon can pass the hike on that, too?)
[9]Don't forget to leave a rating: Amazon chairman meeting with UK prime minister to talk taxes
Meanwhile, the OECD plan was [10]delayed last year and, amid prospects of a further delay, the PAC was concerned HMRC was unprepared.
"We saw little evidence to support the confidence expressed by the departments in evidence to us that the OECD reforms will be implemented to the current timetable. The proposed reforms are complex and rely completely on agreement being reached across around 140 tax jurisdictions," the report said.
Sarah Olney MP, lead on the PAC inquiry, said: "We were very pleased to see HMRC finally getting to grips with the realities of taxing multinational corporations, after years of PAC recommendations on this. But the Revenue needs to up its game on compliance – especially across jurisdictions – about how the tax will actually operate, over what will likely be years more before a proper international tax is fully operational."
The PAC found that around 90 percent of the total DST revenues (£358 million) for 2020-21 in the first year were provided by five business groups, although it declined to name them. But 11 of the 20 business groups that HMRC initially expected to make a payment determined they did not owe any DST. Eighteen paid in total.
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"HMRC has yet to identify any non-compliance and it is not yet clear if HMRC has captured all groups that should be within scope for the tax," the report said. "HMRC could still face challenges ahead with enforcing compliance, especially among groups without a physical presence in the UK. It will need to manage a larger population of business groups across a wider range of business activities than it initially expected. HMRC will need to ensure good levels of compliance to maintain DST as a credible alternative until the OECD Pillar One reforms come into effect."
A spokesperson at HMRC, said in a statement:
"The Digital Services Tax has proved highly effective at taxing the UK revenues made by online businesses ahead of new international rules. Profit-shifting by multinationals is separate issue and the government has taken significant steps to tackle it.
"HMRC has an extremely strong track record on multinational tax compliance and actively challenges them on tax due. Between 1 April 2016 and 31 March 2022 HMRC brought in over £66bn by effectively policing the tax rules as they apply to the largest businesses." ®
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[2] https://committees.parliament.uk/committee/127/public-accounts-committee/news/194636/success-of-uks-digital-services-tax-tempered-by-concern-about-future-avoidance-or-evasion-by-big-tech/
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[6] https://www.theregister.com/2021/10/22/us_drops_dst_tariff_threat/
[7] https://www.theregister.com/2021/10/08/oecd_minimum_corporation_tax/
[8] https://www.theregister.com/2021/09/29/labour_digital_services_tax/
[9] https://www.theregister.com/2021/09/20/amazon_chairman_meeting_with_uk/
[10] https://www.theguardian.com/business/2022/may/24/historic-global-tax-deal-on-multinationals-delayed-until-2024
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[12] https://whitepapers.theregister.com/
Bigger question: why are so many high street shops empty - with the exception of so many charity shops?
Council rates are charged on rent. So typically if you pay £10kpa in rent, you have to give the council £3-5kpa in tax.
If you can buy something online, at scale and with fewer costs/overheads, it's no wonder that the high street is considerably more expensive. And of course, the council does not charge charity shops, so the net result is our high streets are cluttered with charity shops.
My favourite example is the Northern lad who converted a disused underground public toilet into a small cocktail bar. Only to find the council changed his tax rate from £3kpa to £24kpa.
He'll need to sell 5000+ cocktails annually just to cover the council tax rates.
That is what the councils are fighting for. They are fighting for their right to gouge the public by forcing them to use the shops. It's only mafia-like. The difference being that Amazon can happily put their shipping locations in the middle of nowhere and the cost per package ends up being relatively low.
re: They are fighting for their right to gouge the public
Don't forget charging you an arm and a leg to park anywhere near the shops that they are driving out of business.
There is an ASDA near me. Their car park is run by a private company who stomp on infringers. I even got a ticket for parking my Motorcycle for 1hr even if none of their displays (or their app) has the facility or rate for motorcycles...
The council run car park on the other side of the town centre is 30% more than the ASDA one. It is never more than 25% full.
People have got royally fed up with their gestapo tactics so they park in car park 100yds away that gives 2hrs free parking. People will vote with their feet.
The next door town offers free town centre parking on a sunday. Guess where I do my shopping.
Really?
HMRC has an extremely strong track record on multinational tax compliance
M'Lord, I would strongly disagree with that statement. The frankly pitiful efforts to tax the likes of Google and especially Amazon have failed miserably. For Amazon to pay next to no UK tax on their profits from the UK biz is in the record for all to see.
HMRC are a bunch of useless twats when it comes to taxing foreign owned businesses... When it comes to legislation like IR 35 where their victims do not have legions of highly paid lawyer on speed dial they get results.
What is with the word "rightful" before 'revenue' in that article? There is nothing rightful about tax revenue.
HMRC
I wish HMRC the best of luck, but I suspect that the multinational digital services companies will be several steps ahead of them when it comes to taxation. This in a country where the duchies of Lancaster and of Cornwall pay no CGT or Corporation tax because they are the 'private' businesses of the monarch and the heir to the throne (https://www.theguardian.com/uk-news/ng-interactive/2023/apr/05/revealed-royals-took-more-than-1bn-income-from-controversial-estates-king-charles-queen-duchies-cornwall-lancaster) but people living in social housing cannot get the landlords (sometimes local councils) to keep them in good enough repair to prevent mould (which killed a little child recently: https://www.independent.co.uk/news/uk/home-news/awaab-ishak-death-mould-housing-b2225448.html).
I have little confidence in multi-millionaire politicians with great wealth in tax havens in effectively challenging tax loopholes for companies. Let's hope I'm wrong.