Dame Treasury and the taxing of tech giants

Last Autumn, the UK government issued a consultative position paper entitled “Corporate tax and the digital economy” which discussed the merits of implementing a new interim tax that would be aimed chiefly at large technology companies and the revenue generated by their users. It is now considering the responses.

Ken Almand, Transfer Pricing Partner, breaks down the issue in simple terms through the medium of a Christmas pantomime script:

Welcome to the pantomime! Yes, yes, it is rather past the traditional Christmas panto season but this show has been on the road for a long time now and looks set to run and run.

Prologue

For a number of years there had been considerable disquiet in some parts that multinational tech giants had not been paying their fair share of corporate tax. This feeling was widespread in a number of kingdoms, not just the United Kingdom. Now it seemed that the UK Government was contemplating a new type of tax specifically for the tech giants – using an approach not seen before…

Act One

The big tech giants come on stage. In recent years the systems they had developed had come to play a major part in the lives of many in the audience.

Enter stage left a number of newcomers led by Dame Treasury. “These giants don’t pay enough tax!” cry the newcomers. “Oh yes we do!” cry the giants.

“Oh no you don’t!” shout large sections of the audience. 

Lots of other countries flood on to the stage. “The giants don’t pay their share in our kingdoms either” they shout loudly. “Something should be done.”

Act Two

New characters appear from the shadows, where they have been chatting amongst themselves. They are quaintly named OECD and EU. “Stop this squabbling,” they plead.

“Be patient,” continued OECD. “We are working to agree a solution that is consistent and can be applied around the world. Our plans will be announced in April.”

“Well,”  sniffs the Dame, “let’s see what you come up with. But if we don’t like it we are going alone and will introduce a new UK tax for you giants. It will only be an ‘interim tax’ of course.” (Big wink for the benefit of the audience.)

“Just like that temporary income tax introduced in 1799!” retorts a giant.

The Dame ignores him and continues: “And it will be based upon your revenues, not your profits. As you giants seem able to shift those to faraway places.”

“Hurrah!” cries a voice. “About time!” shouts another.

“How will you identify a giant?” asks an audience member. “They don’t all look the same you know. What about a smallish or medium size one?”

“It won’t be easy,” admits the Dame, “but we will be innovative in our approach. In fact, we will do something truly ground-breaking – we are thinking of taxing you giants based on revenues that are, well sort of, generated by you lot,” she said, gesturing at the audience, “participating in their social media systems.”

Everyone looked slightly perplexed. 

“It really is very straightforward,” muttered the Dame, producing a very large bundle of papers and taking a deep breath. “We simply want to tax giants that are looking to target revenues or commissions generated by free social media platforms that target adverts at network users…plus online marketplaces that generate commission by matching customers and suppliers…and also collaborative platforms that bring buyers and sellers together…” The Dame paused. “But not giants that sell their own or acquired goods via an online platform or that charge for the provision of digital content, software or services. Well, probably not anyway.”

“Well that’s cleared that up then,” smirked one of the giants. “Makes me feel like I am not wanted here.”

The Dame continued: “Of course it might not come to this if the OECD and EU do the right thing, but if they don’t…well we are ready to act. After all, we have been telling you for a while now that the UK wants to be at the forefront of digital innovation – and that includes taxing it!”          

Epilogue

The Treasury consultation has now closed. Whilst we await developments over the next couple of months the clear message is that if the new principles and rules to be announced shortly by the OECD and EU are not to the Government’s liking, they could unilaterally introduce a new ‘tech tax’ based on revenues rather than profits.

Either way, businesses trading or operating via the web need to take this matter seriously and consider the implications for them without delay. It is clear that potentially expensive new taxes could be introduced soon, not just in the UK but in a number of territories.

If you would like to discuss any of the issues raised above, please get in touch with Ken Almand.

 

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