Drawing a parallel with nineteenth century US railroad cartels, Chancellor Philip Hammon today warned that the “expansion of the global tech giants and digital platforms” poses a threat to competition and claimed the UK will unilaterally instigate a Digital Services Tax if multilateral discussions do not bear fruit soon.
In a speech to the Conservative Party conference, he said: “The best way to tax international companies is through international agreements, but the time for talking is coming to an end and the stalling has to stop. If we cannot reach agreement, the UK will go it alone with a ‘Digital Services Tax’ of its own.”
Philip Hammond was notably not among the 10 European finance ministers who signed a letter to the European Commission late last year calling for major tech firms to start paying a tax on revenues in any country where they do business, instead of being taxed on profits that they currently report in often low-tax countries.
Hammond added, meanwhile, that he has tasked President Obama’s former chief economist, Jason Furman, with leading a review of the UK’s competition regime, “to ensure it is fit for the digital era.”
Digital Services Tax: OECD, European Commission Efforts
The speech came as the Organisation for Economic Cooperation and Development (OECD) is attempting to develop – amid sustained disagreement among members on the shape of any proposal – international tax rules that can cope with digital firms that can shift sales and profits between jurisdictions with ease.
A March proposal from the European Commission meanwhile sought to leapfrog those efforts and establish a European tech tax.
It noted: “Profits made through lucrative activities, such as selling user-generated data and content, are not captured by today’s tax rules.”
“Member States are now starting to seek fast, unilateral solutions to tax digital activities, which creates a legal minefield and tax uncertainty for business. A coordinated approach is the only way to ensure that the digital economy is taxed in a fair, growth-friendly and sustainable way.”
In a later event, Reuters reported, Hammond said the tax would only apply to firms above a “quite substantial” size threshold and would involve putting a value on the content and data of British consumers as a share of the firms’ overall value and calculating what proportion of the business is based in the UK.
It is unclear if more detailed proposals will be forthcoming.