Digital Services Tax: UK Going It Alone?

Wednesday October 3, 2018

For some, this announcement has been a long time coming. For others, it’s a hasty, blind swing at a fast-moving target. Either way, we’re going to have to wait and see what it all means once the dust actually settles. Choosing his Conservative Party Conference speech to set this particular cat loose among the business world’s pigeons, Chancellor Phillip Hammond argued that global internet giants like Facebook and Amazon need to pull their weight in paying for UK public services. What’s more, he’s not prepared to hang around while the international community argues over what’s to be done about it. The UK could well just “go it alone” on digital services tax if no broad agreement is struck soon. Right now, Mr. Hammond is still carefully talking up the better option of a full international consensus on any digital services tax. However, one major roadblock there seems to be the United States’ argument that digital businesses shouldn’t be singled out unfairly.

So – time to hit the panic button, right? Well, maybe not quite yet.

First off, it’s a stretch to call this any kind of specific policy announcement. The speech did hint that the Treasury might start running a tougher game against the big digital players, but it was more of a general statement of position. If an international agreement on taxing tech giants can’t be reached any time soon, the UK is apparently prepared to pull the trigger on its own. Nothing definite was announced, but with a Budget on the way we might get some real details to chew over soon.

To put it all in context, this is more than just some generic pre-Brexit tough talk. It’s a reaction to a genuine feeling in some circles that huge tech firms like Amazon have been getting away with fiscal murder (the second-worst kind of murder). Amazon’s UK division coughed up about £4.6 million in the last tax year on profits edging toward £2 billion. The year before, Facebook raked in £842.4 million, but paid out only £5.1 million in tax. That’s the kind of tax gap the Chancellor’s looking to narrow, but it’s been tough going to get an international plan moving.

The up-side to cracking down on big digital firms is worth looking over. Tech giants have a way of running rough-shod over their competition, so there’d be some celebration in the brick-and-mortar retail trenches if Amazon had to bite a slightly bigger tax bullet. Without a lot of physical premises to pay business rates on, online giants arguably aren’t pitching in fairly toward public services. Tax law is struggling to stay relevant in an internet age, and aggressive tax avoidance has become the name of the game for some of its biggest players.

As for the down-side, it’s all about the small details – which we’re very short on so far. The tough thing about sledgehammer swings on tax is that they crack a lot of unintended nuts when they land. While Mr. Hammond makes it clear he’s got Big Business firmly in his crosshairs, it’s very often the smaller enterprises that end up taking the bullet at times like these. SME tech firms survive on innovation – but that very dynamism and agility can be stifled in a heartbeat by heavy-handed tax or over-aggressive regulation. With an uncertain Brexit still to look forward to, innovation needs to be rewarded and invested in, rather than choked off. Any new system would be targeting the giants, so until we know more about where the lines are drawn it’s a little too early to judge the impact on SMEs. It’s definitely worth paying attention, though. We’ve already seen with VAT MOSS that the needs of smaller firms aren’t always considered when new rules come in.

The key thing to keep in mind, as always, it that RIFT has you covered. We’re keeping a very close eye on this and, however it shakes out, you’re in safe hands. Whatever challenges, obstacles and opportunities you face, RIFT will be there to help your business thrive.

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