Home news Budget 2017: Tech giants targeted over VAT payments

Budget 2017: Tech giants targeted over VAT payments

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The government will take steps to increase the tax it collects from firms doing business online, Mr Hammond has announced. From April 2019, technology groups such as Google and Apple will pay a new withholding tax on the royalty payments they make to their subsidiaries in low-tax jurisdictions.Mr Hammond also tightened rules to prevent online sellers avoiding VAT.These moves are expected to bring in £200m a year on average.HMRC will hold online marketplaces such as eBay and Amazon responsible if sellers using their platforms fail to pay Value Added Tax on their sales.All businesses operating on their sites will have to show a valid VAT number.’Unfair advantage’The increased tax income from multinationals should raise £285m in 2019-20, but that amount is expected to fall in each subsequent year to £130m in 2022-23.The Budget statement said the payments would be due “even if the group has no taxable UK presence under current rules”.It added: “It will prevent multinationals from gaining an unfair advantage by locating an IP [address] in low or no tax jurisdictions and so will level the playing field.”The move is expected to have raised £800m by March 2023.Alison Lobb, international tax partner at Deloitte, said: “It will be necessary to be able to clearly distinguish ‘digital’ companies subject to the digital turnover tax from other businesses. “Even harder will be determining the appropriate rate – left open in the position paper – so that it represents a reasonable proxy for tax on profits, and so that it doesn’t deter cross-border trade. “Any moves made by the UK are likely to be mirrored by other countries, so UK digital businesses operating overseas will be equally affected.”

Analysis: Rob Young, BBC business presenter

Tech giants and the taxman are playing a digital game of cat and mouse. As the Paradise Papers showed recently, big, international companies use various means to move money out of the Treasury’s reach. Cash earned from an online sale made in the UK may not be taxed in the UK, or anywhere. Digital firms’ intellectual property is often owned by companies in tax havens, so large royalty payments are funnelled offshore.The chancellor is trying to tax this flow of money, acknowledging “digitalisation poses challenges for the sustainability and fairness of our tax system”. The Treasury isn’t clear how its new digital tax will be enforced – it admits some companies have “no taxable UK presence”. The forecast for falling income each year from the tax perhaps suggests the Treasury expects companies to find a way round the rule.This isn’t the complete answer, but it is a highly symbolic announcement – ministers have had enough of global companies sheltering profits from tax.

‘Signal of determination’Chancellor Philip Hammond said: “Multinational digital businesses pay billions of pounds in royalties to jurisdictions where they are not taxed and some of those relate to UK sales.”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.”The plan to ensure people and businesses selling through online marketplaces pay the correct tax comes after warnings issued to Amazon and eBay last month about them profiting from sellers who were not charging VAT.A report by MPs estimated that up to £1.5bn in tax had been lost from these third-party sellers.Digital platforms will be asked to play a “wider role in ensuring that users are compliant with the tax rules”.The government is set to ask for more evidence next spring to explore the action that digital platforms can take.
Source: BBC News

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