Peter Dowd: Tech giants operating in the UK have had a field day

Posted On: 
15th October 2018

This government has a record of indifference towards global tax avoidance and international co-operation. It’s no wonder so many are sceptical about the Chancellor’s Damascene conversion, writes Shadow Chief Secretary to the Treasury Peter Dowd

The government should change course, show some leadership, and encourage our European partners to break the deadlock, writes Peter Dowd
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At the recent Conservative Party Conference, the Chancellor, Philip Hammond, announced a review into the establishment of a digital services tax. He opined that the UK was poised to go it alone if an international agreement cannot be reached. Over the last eight years, tech giants operating in the UK have had a field day. From Amazon’s questionable treatment of its warehouse workers to Facebook’s misappropriation of its users’ data and the various cases of tax avoidance, it’s clear that tech companies have been given licence.

Meanwhile, the Conservative’s record when it comes to engaging with our European neighbours and other global partners on tackling tax avoidance has been insouciant. The government has blocked EU measures introducing a “Common Consolidated Corporate Tax Base”, delayed adopting measures that would ensure the full transparency of beneficial owners, and blocked measures against profit-shifting. Is it any wonder that the Chancellor’s Damascene conversion to working with our European neighbours to tackle tax avoidance has left so many people a tad sceptical?

A digital services tax is not a new idea. In fact, the EU Commission is currently in talks with member states over the adoption of an EU wide digital services tax by 2020. The proposed EU plan would amount to a 3% levy on tech companies, estimated to raise up to £4.4bn a year. However, the talks have recently stalled with Ireland, Finland, and the Czech Republic unhappy with the plan. This ongoing deadlock might explain why the Chancellor has suggested that the UK could go it alone, but it remains to be seen how such a unilateral tax would operate.

First, the government would have to identify exactly which sales would be subject to a new tax and whether it would be based on where the users or businesses are located. Second, it would need to agree a threshold for the tax, to avoid unfairly penalising smaller and less profitable companies. Third, it would need to establish the number of users in the UK. This aspect would be particularly problematic as tech companies are unlikely to offer a breakdown of their user numbers simply for the benefit of HMRC. Fourth, HMRC would need to find a way to prevent tech companies from simply passing on the cost directly to consumers by raising prices.

Any digital services tax must also consider investment in the UK’s fast-growing digital technology sector, which is 50% higher than any other European country, employs more than 1.5 million people, and accounted for £6.8bn of investment in 2016.

While it is right that online businesses pay their fair share, the cross-border nature of tech companies creates difficulties for national taxation systems. International co-operation helps sustain national tax bases and could support a Digital Services Tax, but this government’s approach to international taxes so far has seriously undermined that co-operation.

The government should change course, show some leadership, and encourage our European partners to break the deadlock and find an agreement that would create a mechanism to effectively assess and tax the revenues of tech companies. We’ve had enough maladroit consultations by the government, so if the Chancellor is unilaterally considering a digital services tax, he should do his homework first.