The world’s biggest tech companies are expected to “circumvent” the instructions of the British government. special tax digital companies before new international rules are implemented, the parliamentarians warned.
In a report published on Tuesday, the House of Commons public accounts committee found that the digital services tax raised £358m from 18 companies in its first year, 30 per cent more than expected. But he warned that the “successful implementation” of the tax was unlikely to continue in 2020-21.
He said that as the implementation of an international tax treaty, put in place to replace the levy, was likely to be delayed, he hoped companies would use “the enormous resources and expertise at their disposal to circumvent” the tax on digital services.
“While there may be no evidence of active tax avoidance or evasion by companies to date, this may change if the term of the digital services tax is extended,” the report concluded, which did not name any companies. .
Ministers introduced the new digital services tax in 2020 as a temporary measure to address concerns that tech companies were reporting low profits in the UK by diverting profits made on UK sales to other countries with tax rates. lower corporate taxes.
Other countries, such as France, Spain, Italy and Türkiye, implemented similar measures. Most, including the UK, have said they would repeal the tax once an OECD deal is put in place, which would allow countries to tax an element of the profits of the biggest multinationals where they make their sales.
Although the process is advancing in the international organization based in Paris, there are few signs that the US Congress will ratify any agreement andeven if the Biden administration signed on.
Sarah Olney, the Liberal Democrat MP who led the PAC inquiry, said: “We were very pleased to see [HM Revenue & Customs] finally assimilating the realities of taxing multinational corporations. . . But [HMRC] You need to up your game on compliance, especially across jurisdictions, on how the tax will actually work, during what will likely be more years before a proper international tax is fully operational.”
Neil Ross, associate director for policy at industry group TechUK, dismissed the report’s suggestion that companies would seek ways to circumvent the tax as “shocking and unfounded”. He added: “From our perspective, companies are trying to get clarity and information from HMRC to comply. But HMRC was very slow and did not have the necessary resources.
But he agreed that the tax was a “second best option. . . Political attention should be focused on getting the OECD framework agreed.”
The Treasury and HMRC also rejected the PAC’s warning that businesses would circumvent the tax, saying it was relatively easy to operate. Officials said the tax system also had other ways, including a tax on siphoned off profits, to ensure that tech giants paid their fair share.
“The digital services tax has proven to be very effective in taxing UK income generated by online businesses ahead of the new international rules,” HMRC said. It added that it had “an extremely strong track record in multinational tax compliance.”