Row brewing in Whitehall over digital services tax
Reports have claimed the levy on tech giants could be dropped as it is holding up trade talks with the US
A DEBATE is raging within Whitehall over the future of the Government’s tax on tech giants amid claims the levy could be scrapped.
The Treasury rushed to pour cold water on claims that it plans to discard the digital services tax after reports over the weekend.
The tax would result in tech giants Facebook and Amazon being charged 2pc on revenues derived in the UK from search engines, social media websites and online sales.
Announced by Philip Hammond, the former chancellor, and in force since April 1, the tax applies on revenues over £25m for companies with more than £500m in sales worldwide.
The Mail on Sunday claimed the tax was about to be ditched after it became “more trouble than it’s worth” in negotiations with United States trade officials and risked angering Donald Trump, the US president.
But Government insiders pushed back on the reports. One source furiously claimed they were “rubbish”.
The digital services tax is expected to ultimately raise £500m per year from tech giants after years of complaints that they book their profits from sales or advertising in the UK overseas.
However, the tax has been criticised by American officials who see it as punitive. The US threatened retaliatory tariffs on France for its planned digital tax, which led to it being delayed.
The UK is expected to revoke its digital tax if an international plan is agreed with other nations, although the US has expressed frustration over negotiations at the OECD.
There are also concerns that digital taxes could ultimately end up being passed on to consumers and small businesses. Earlier this month, Amazon announced that from Sept 1 it would pass the cost of the digital services tax on to sellers using its platform.
The Mail on Sunday reported the tax had emerged as a “stumbling block” in talks between US negotiators and the UK team, which is led by Liz Truss, the Trade Secretary.
George Turner, of think tank TaxWatch, said he would be surprised if the Treasury performed a U-turn on the digital tax. He said: “Politically, tax avoidance is hated by the public. The Treasury has been gung-ho about the tax even as other countries have rowed back on it.
“At a time when we are getting talk from many people in the Treasury that tax rises are coming, if people are to accept higher taxes they will want to know companies are being taxed fairly.”
He added the OECD had so far failed to come up with a compromise.
In June, the Chancellor wrote to US Treasury Secretary Steve Mnuchin, along with finance ministers from France, Germany and Italy, demanding US tech giants “pay their fair share of tax”. Mr Mnuchin had warned talks with other countries were at an “impasse”.
Because of the success of digital retail sales during the pandemic, the Treasury is also looking at a separate tax on online sales.
A Treasury spokesman said: “We’ve been clear the digital services tax is a temporary tax that will be removed once an appropriate global solution is in place – and we continue to work with our international partners to reach that goal.”