The United Kingdom’s digital services tax is a step in the right direction and must go ahead “in the absence of an international approach,” a former Treasury minister said during a finance bill debate.
Mel Stride, Conservative member of Parliament and chair of the House of Commons Treasury Committee, said he was “particularly pleased to see such a large number” of clauses relating to the DST. “It is not right that search engines, online marketplaces, and social media platforms should not be paying a fair level of tax in our country,” he said during the second reading debate on April 27.
“We cannot assess national taxation rights on property, on where people work, on where the management are, and on where the intellectual property resides. We must do it where value is created, and [the DST] is a big step in the right direction. I urge [Financial Secretary Jesse Norman] to stick to his guns. He will face great pressure from the United States in particular, but in the absence of an international approach to this matter, it is vital that we take action,” Stride argued.
Labour welcomes the DST “to the extent that it recognizes the comparative undertaxation of many digitally provided services,” but the party is concerned about the measure’s “restricted scope,” said Anneliese Dodds, Labour’s shadow chancellor. “It means, for example, that Amazon will continue to pay a lower rate of tax, in relation to revenue, than many high-street bookstores and other retailers.”
The DST also “fails to fill the gulf in unpaid corporation tax from many of the largest technology firms,” Dodds suggested. She called on the government to be more forthcoming about what it is doing to seek international consensus on reform of corporate taxes, “not least given current hostility from the U.S. towards multilateral approaches in a number of areas.”
The U.K. government “remains committed to developing a multilateral solution to the challenges digitalization has created for the corporate tax system and will repeal the DST once an appropriate global solution is in place,” HM Treasury said at the March 11 budget.
Bailouts and Tax Havens
There is a strong expectation from the public that U.K. government support for businesses dealing with the economic impact of COVID-19 “must translate into protecting jobs, not the extraction of value into already deep private pockets,” Dodds said.
“We’ve called for the government to consider the examples of other nations, like France and Denmark, as well as the Labour government in Wales, when approaching the bailout to different large firms,” Dodds said. “Jobs must be retained; workforces must be supported; and we should expect and require good corporate behavior going forward. That means a ban on public funds being passed into tax havens or doled out immediately in dividends.” Some European countries have recently said they will deny coronavirus-related funds and tax relief to companies based in tax havens.
“Subsequent finance bills will need to be very different to this one” in order to deal with the impact of the coronavirus, Dodds said. “We will need new approaches to taxation generally, to the social contract with business, to funding public service, to the climate crisis, and to tax reliefs.”
A more progressive tax system will be needed to help U.K. households strengthen their financial resilience, Dodds argued. Corporate tax reliefs must be “focused on employment retention and promotion and the provision of public goods,” she said.
Opening the debate, Norman had noted that the government has made successive cuts to corporation tax rates since 2010, and reminded MPs why the government had decided not to go ahead with a further proposed cut to 17 percent.
“We now have the lowest headline rate in the G-20. This has helped to create a corporate tax system that supports British businesses, supports economic growth, and strengthens the U.K.’s pull for inward investment. However, the extra benefits of lowering corporation tax rates still further need to be balanced against other objectives, such as funding the National Health Service and the public services on which we all rely,” Norman said.
“Likewise, the government is committed to encouraging entrepreneurial activity, but the evidence indicates that [capital gains tax] entrepreneurs’ relief in its current form is neither effective in stimulating new business growth nor good value for money,” Norman said. Norman added that by reducing the lifetime limit in the March 11 budget, the government is “returning the relief to its original purpose while continuing to promote and reward enterprise.”
Johnson Warns of ‘Maximum Risk’
Earlier on April 27 Prime Minister Boris Johnson said the United Kingdom has now reached “the moment of maximum risk” in the coronavirus outbreak because “there will be many people looking now at our apparent success and beginning to wonder whether now is the time to go easy” on social distancing measures.
As he returned to work after recovering from COVID-19, Johnson emphasized “the risk of a second spike that would mean not only a new wave of death and disease but also an economic disaster.”