Government urged to delay digital services tax amid coronavirus outbreak

Trade body TechUK has called on the government to reassess its digital services tax, arguing that technology companies should be given more “breathing space” by delaying liabilities for a year.

The tax, which came into effect at the start of April 2020, applies to search engines, social media platforms and online marketplaces with global revenues of more than £500m, and where more than £25m of this is derived from UK users.

Companies that exceed these thresholds are subject to a 2% tax on their revenues, but TechUK deputy chief executive Antony Walker has said that the government’s introduction of the tax is “creating a large degree of uncertainty” for businesses.

“HMRC now expects many more companies across the sector to begin allocating resources to determine liability,” he said.

“This is all at a time when, due to Covid-19, resources are stretched and future revenue is uncertain. The government is creating a large degree of uncertainty. It would therefore be wise to seek to look again at how the tax has been designed and how and when it should be implemented.”

TechUK represents hundreds of technology companies in the UK, including giants such as Facebook, Google, Amazon and Apple.

The Digital Services Tax (DST), however, is specifically designed to address “a misalignment between the place where profits are taxed and the place where value is created”, and therefore targets the profits of large multi-national enterprises that fall within its scope.

On 7 April 2020, the Guardian reported that Google only paid £44m in UK corporation tax in 2019, despite staff earning an average of £234,000 each.

In October 2019 it similarly emerged that Facebook had paid £28m in UK corporation tax last year, while also reaching a record £1.6bn in sales.

Alex Cobham, chief executive of campaign group Tax Justice Network, said that lobbying against DST “is completely shameless of the tech companies – even by their low standards”, adding that they already have the lowest effective tax rates in the world by declaring profits in low to no-tax jurisdictions.

“What makes this special pleading so egregious right now is that the massive state intervention of locking down the economy has created supernormal profits for the tech companies – because they are among the few that can still operate more or less at full speed,” he said.

“For some, like Amazon, government action has basically put most of their competition out of business for now, guaranteeing them huge profits from the pandemic that everyone else is suffering from.”

In response to questions from Computer Weekly, Facebook stated it did not support TechUK’s comments and was never consulted on them. It also stated that TechUK represents and supports hundreds of smaller technology companies, and that its comments likely apply to them.

In February 2020, Facebook CEO Mark Zuckerberg said he was happy to pay more tax in Europe, backing the Organisation for Economic Co-operation and Development’s (OECDs) plans to reform multi-national taxation.

In response to the same questions, Amazon directed Computer Weekly back to TechUK for information, while Apple and Google did not respond by the time of publication.

National newspaper reports this week suggested that TechUK had been lobbying the government for changes to DST. TechUK, however, denies this. Walker’s comments appear to have come from quotes provided for a Bloomberg story published on 1 April.

“TechUK has not lobbied government to delay the introduction of DST in response to Covid-19. TechUK remains concerned about the lack of clarity of the UK DST potentially capturing a far broader range of UK companies,” TechUK said in a statement.

“TechUK continues to work with government to ensure businesses have the clarity they need, particularly against the backdrop of huge economic disruption and uncertainty. We continue to believe an OECD-level [Organisation for Economic Co-operation and Development] solution is the best outcome.

“Our number one priority remains the immediate contribution our sector can make in combating the Covid-19 pandemic and understanding how digital solutions can play their part in our country’s recovery.

“Hundreds of companies, of which many are TechUK members, have already mobilised in support of recovery efforts through offering solutions to the NHS, free services for NHS staff and ensuring that we remain connected to one another,” it said.