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RIP Digital Services Tax?

The Mail on Sunday reported that the UK is about to ditch the Digital Services Tax. Philip Fisher looks at the implications and asks whether the government has a grip on tax for digital services giants.

26th Aug 2020
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27th June 2019, Dublin, Ireland. The Facebook Like sign outside Facebook's European headquarters building in Dublin's Grand Canal Dock.
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Since the pandemic reached the United Kingdom five months ago, it has become increasingly apparent that one of the government’s main strategies for testing out prospective policies is to leak them to friendly agents in the media.

Therefore, a report in this week’s Mail on Sunday that the government was in the process of withdrawing its Digital Services Tax at the behest of the United States must be taken seriously.

The underlying justification for the proposed move appears to be a desperate attempt to improve any trade deal that our country is able to negotiate with its cousin across the Atlantic.

Digital Services Tax: Implications

For those that do not follow these matters or have few online multinational groups in the client base, the Digital Services Tax (DST) is a 2% charge on revenues generated in the UK by companies such as Google, Apple, Amazon and Facebook.

The primary principle, which is being negotiated (exceedingly slowly) on a global basis, is that where companies need not have a proper fixed base to generate massive profits, it is only fair and just that countries in which those profits are made get their fair share of tax.

It has become patently obvious to all that under the current antiquated tax regimes which operate around the world, this is not happening and the large digital services companies are shifting operations into tax havens to reduce liabilities to what many regard as laughable levels.

French dealings with Facebook

At almost exactly the same time as this story was leaked, another was doing the rounds about France implementing a similar tax under which 3% would be levied twice a year on exactly the same companies. This has currently been deferred until the end of the year to avoid a threatened trade war.

The obvious conclusion that one might reach is not that our Digital Services Tax should be wound up but instead, the rate trebled so that United Kingdom’s coffers get a much-needed boost at this troubled time.

At the same time, it was reported that Facebook has come to a deal with the French taxing authorities to make a payment of €106 million covering the last 10 years. While this a drop in the ocean, it is at least some kind of compensation for all the tax that the company would have paid under any rational regime.

Many might also conclude that this modest deal strongly suggests Facebook knows very well that it has been taking the French authorities for a ride for the last decade and quite possibly longer.

It would be lovely to know whether HM Revenue and Customs is currently anywhere near to negotiating similar deals with any of the large tech companies.

Who will come up Trumps?

There can be little doubt that, despite his need to concentrate on more pressing issues, President Trump will be tweeting madly against M. Macron if the 6% plan is implemented.

Many will appreciate a considerable degree of irony in the mooted plan on this side of the English Channel.

Our current Prime Minister is a man who loves jumping up and down and shouting “take back control”. In future, he might need to adapt this phrase in such a way that it can be expressed as “take back control from Europe and give it to the United States”.

As a final, sad observation, Rishi Sunak is also quoted (indirectly) as hinting that at £0.5 billion, the DST is “more trouble than it is worth”. On that basis, the pittance that I pay should be beyond his notice but I don’t think that Mr S will be thanking me if it doesn’t get paid on time.

Replies (3)

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By Mike Warburton
28th Aug 2020 10:41

What is frequently overlooked is how much these companies pay in income tax and NIC when their UK employees acquire shares under their share award schemes. Due to the large increase in their share prices these tax payments have been very large over the last few years. Under rules introduced by Gordon Brown the UK company obtains a corporation tax deduction of the value of the shares when they are taken up even though the shares are awarded in the US parent at no direct cost to the UK employer. It has the effect of dramatically reducing the CT liability which then attracts criticism from the uninformed media. Last year the tax paid by Amazon when these tax payment are taken into account was about 75% of reported profits. And incidentally the UK profit margin was twice their global number. I have no connection with Amazon but I think we should recognise a brilliant company when we see it and stop criticising them.

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By mike_thompson
28th Aug 2020 11:15

Couldn't agree more. As we are dependent on companies in the services sector increasingly now able to operate from anywhere in the world we need to be more willing to explore novel ways of making them pay. With the disruption from covid19 accelerating new ways of working and hollowing out cities we need to think long and hard about what we will need to do to rebuild our economy.

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By AndyC555
02nd Sep 2020 11:34

"...where companies need not have a proper fixed base to generate massive profits, it is only fair and just that countries in which those profits are made get their fair share of tax."

Why is it "fair and just"? I thought the ideal was that taxes paid for services. So if we are looking at a US company, with US workers, with US roads carrying those workers to work, US schools educating the children of those workers, US hospitals caring for their families, US police officers protecting them (or not) and every other strand of government help having to be funded in the US, why is it 'fair and just' that a company should pay tax where its customers are? What has it or does it cost the UK to set up and support a US company and its workers?

And of course, if we in the UK start taxing companies just because we are the customers, would it be any surprise if other countries decided to start taxing UK companies which export and currently pay all of their taxes in the UK?

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