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MPs have warned that they will be expected to “circumvent” the British government’s special tax on digital companies.
In a report published on Tuesday, the House of Commons Public Accounts Committee found that digital services tax collected £358mn from 18 companies in the first year – 30% more than expected. But he warned that “successful implementation” of the levy was unlikely to continue in 2020-21.
The implementation of the global tax treaty – which will replace the levy – is expected to be delayed, so companies are expected to “use their considerable resources and expertise” on the digital services tax.
“While there is no evidence of active tax avoidance or evasion by businesses to date, this may change if the digital services tax life is extended,” the report, which did not name the companies, concluded.
Ministers introduced the new digital services tax in 2020 as a temporary measure to address concerns that tech companies are shifting profits from UK sales to countries with lower corporate tax rates and declaring lower profits in the UK.
Other countries such as France, Spain, Italy and Turkey have taken similar measures. He said most countries, including the UK, would scrap the tax after an OECD agreement that allows them to tax the biggest profits of multinationals where they make the sales.
Although the process is underway at the Paris-based international organization, with the Biden administration signed up, there are few signs that the US Congress will approve any deal.
Liberal Democrat MP Sarah Olney, who led the PAC inquiry, said: “We were delighted to see [HM Revenue & Customs] Finally, accepting the facts related to taxation of multinational corporations. . . But [HMRC] A proper global tax will be years away from being fully operational, especially in different jurisdictions – it will have to up the game in terms of how tax actually works.
Neil Ross, associate director of policy at industry group Tech UK, dismissed the report’s suggestion that businesses find ways to avoid the tax as “outrageous and baseless”. He added: “From our perspective, companies are trying to get transparency and information from HMRC to comply. But HMRC was very slow and did not get around effectively.
But he called taxes “a second-best option . . . The political focus should be on an agreement on the OECD framework.
The Treasury and HMRC have also dismissed the PAC’s warning that companies are undermining the tax, which is relatively easy to do. Officials also said the tax system has other ways to ensure tech giants pay their fair share, including a dividend tax.
HMRC said “Digital Services Tax has become the most effective way of taxing UK income generated by online businesses ahead of new international rules.” He added: “He had an extremely strong track record in international tax compliance.”
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