Reforms unveiled in the Budget yesterday look set to mean a greater tax bill for multinational digital retailers such as Amazon and Apple that do not pay taxes here on the sales they generate in the UK.
In his speech, the Chancellor of the Exchequer, Philip Hammond, responded to ongoing concerns about the lower tax paid in the UK by retailers that trade here but are not based here for tax purposes.
Concerns have come, among others, from organisations including the European Commission, which has named both Apple and Amazon as recipients of illegal tax advantages through their European domiciles in Ireland and Luxembourg respectively.
Philip Hammond said in his Budget speech this week that the UK was working internationally to find solutions to challenges raised by digitalisation for the sustainability and fairness of the tax system, and said that this was a challenge best solved between nations. Nonetheless, he said, there were still steps that the UK could take.
“In the meantime, we will take what action we can,” he said. “Multinational digital businesses pay billions of pounds in royalties to jurisdictions where they are not taxed. And some of these royalties relate to UK sales. So from April 2019, and in accordance with our international obligations, we will apply income tax to royalties relating to UK sales, when those royalties are paid to a low tax jurisdiction. Even if they do not fall to be taxed in the UK under our current rules. Raising about £200 million a year.
“This does not solve the problem, but it does send a signal of our determination. And we will continue work in the international arena to find a sustainable and fair long-term solution that properly taxes the digital businesses that operate in our cyberspace.”
The Government also published a position paper consulting on corporate tax and the digital economy. The deadline for responses is January 31.
The position paper says that the Government recognises the benefits digital businesses provide “in terms of enhancing consumer choice and supporting productivity, and is committed to supporting the continued growth and success of the UK tech sector.” But, it added: “It is essential that the international corporate tax rules ensure that their UK corporation tax payments are commensurate with the value they generate from the UK market and specifically the participation of UK users.”
Options include reforms to the international tax system to recognise the value that such businesses derive from markets including the UK and it is prepared to introduce interim measures including a tax on revenues generated in the UK.
The paper adds that the Government does not believe it is fair for the UK government to tax products designed, made and manufactured in foreign countries but that are sold here remotely – or, conversely for foreign governments to tax UK businesses that are exported remotely.
Rather, it argues taht “countries should have the right to tax business profits derived from productive activities, enterprise and human innovation in their jurisdiction, irrespective of where shareholders and customers are located.”
This week’s move follows a Diverted Profits tax that was introduced in 2015 and is forecast to raise £1.35bn by 2019.