UK’s Proposed Digital Tax ‘Would Cauterize Investment’
The introduction of a unilateral revenue tax on digital businesses in the UK would stymie investment and be a strangely timed gamble, says accountancy firm Moore Stephens.
The Government’s position paper, “Corporate tax and the digital economy,” released at the recent Spring Statement, includes a proposal to tax certain tech firms on the revenues they derive from their UK users, which could be implemented by the UK unilaterally in the absence of an international agreement.
Moore Stephens says that a tax on turnover would punish businesses in one of the fastest growing sectors of the UK economy, by taxing tech start-ups based on the revenues they generate regardless of whether they are profitable. If implemented, such a tax would be “a disincentive to invest the UK,” and may result in double taxation of the same income.
The firm said the proposed turnover-based tax would “erode the cohesion of the international tax system,” and could “invite retaliatory actions from other countries.” It suggested a change to existing VAT or transfer pricing rules may be a more effective way of compelling tech companies to pay taxes on revenues derived from activities with UK users.
Ken Almand, Transfer Pricing Partner at Moore Stephens, said: “The proposed unilateral tax on tech companies is not a policy that will encourage entrepreneurism and investment in the UK. As the UK looks to encourage inward investment from across the globe as it leaves the EU, it would seem unlikely that there would be any upside from going alone and taxing these companies. It is good that the Government is looking for a long-term solution to the tax problems posed by the digital economy, however a tech tax will not benefit either the wider UK economy or the vital tech industry. Working multilaterally, and specifically with the EU and OECD, offers the UK the best chance to strike a tax deal with international tech companies without dampening the growth prospects of the UK tech sector.”