UK will act alone against tech firm tax avoidance if global solution falters

Exclusive: Treasury minister Mel Stride suggests digital revenue levy on Google and Facebook

The UK would clamp down on overseas technology firms like Google and Facebook by acting unilaterally to introduce a digital revenue levy, if efforts to agree to an international solution on tax avoidance falter, the government said.

The financial secretary to the Treasury, Mel Stride, suggested that tough action would be taken, despite opposition from the increasingly protectionist US to targeting the firms, many of which are based in Silicon Valley.

His comments came as official figures were released on the diverted profits tax – the so-called Google tax introduced in the UK in 2015 which cracks down on multinational companies avoiding tax by shifting profits overseas – which brought in £388m last year, up from £31m three years ago.

The government is working closely with EU partners and the Organisation for Economic Cooperation and Development, which advises on international taxation, to bring in a new global system.

However, in an interview with the Guardian, Stride said that the UK was prepared to go it alone to increase the amount of tax that big global technology firms paid – even taking on the US.

“We have a strong preference for moving multilaterally in that space but we have said that in the event that that doesn’t move fast enough for us then that this is something we could consider doing unilaterally, or perhaps with a smaller group of other tax authorities,” he said.

The US government has criticised the EU’s focus on taxing technology firms, but Stride suggested those concerns would not be an obstacle. “We have to see where we end up in those discussions. In the event that we ultimately feel the need to make some unilateral moves then that’s something that we have on the table.”

Stride questioned whether the tax system more generally was equipped to deal with the big international firms. “There are issues around ... whether it’s fit for purpose in the 21st century for businesses such as search engines, online market places and social media sites, where value has been generated as a consequence of interaction with UK users of those sites,” he said.

Despite controversy over how much they pay, big multinationals stress that they abide by all UK tax laws, and warn that the moves could lead to their being forced to pay taxes for the same activity in two different countries.

A new digital revenue tax could open up the companies’ UK sales to the tax authorities where they currently only pay tax on profits. Google, for example, is paying nearly £50m in corporation tax this year on UK profits of just over £200m, but its annual sales are around £5.7bn.

Stride said that HMRC should continue to work on preventing tax accountants and advisers from using a new loophole whenever one was closed. “Those who enable tax avoidance schemes are in our crosshairs,” he insisted, pledging to “hunt down” tax evasion, avoidance and non-compliance.

Treasury figures show that the UK has a tax gap figure – the difference between what it should collect and what it actually collects – of 5.7%, down from 7.8% a decade ago, amounting to one of the lowest in the developed world. “These figures really matter because they would fund every police officer in England and Wales,” Stride said.

The shadow chancellor, John McDonnell, has said the government needed to show it was serious about clamping down on tax avoidance and “taking on the vested interests of the super rich”, claiming that the Conservatives had consistently sought to “undermine and reverse” efforts to tackle tax avoidance.

But Stride said the figures on the diverted profits tax showed that key aspects of the system were working. “We catch up with those who shouldn’t be doing it, because it is a form of avoidance, and at the same time introduce behavioural change so that other companies that might do it, don’t do it. It’s perfectly fit for purpose.”

The diverted profits tax – set at 25%, which is 6% higher than corporation tax – was brought in to prevent international firms from using transfer pricing, where they divert goods and services via a lower tax jurisdiction to avoid paying in the UK.

Stride rejected criticism from senior figures, including Margaret Hodge, former chair of the Commons public accounts committee, that the UK was the preferred choice of “every kleptocrat and crook” internationally.

He insisted that unexplained wealth orders, which came into effect in January, were “just beginning to bite” and were the main tool used by authorities to chase assets thought to have been gained through crime.

Stride also waded into the row over business rates, which raise £30bn a year for the government and local authorities, £8bn of which is from retailers but which critics claim is squeezing the life out of the high street.

On Monday Lord Wolfson, a Tory peer and chief executive of the Next chain, called on the government to reform business rates, which he said were accelerating the rate at which high-street shops closed. Big retailers, including House of Fraser, Mothercare, and Debenhams, are among those which have closed branches in recent months.

“We recognise that there’s a very strong social value in high streets that transcends raw economics,” Stride said, citing more than £10bn of business tax relief introduced by the government since 2016. But he added that individuals were increasingly shopping online and that was something that firms needed to prepare for.

While he refused to comment on proposals to bring in a specific digital sales tax of 1% for firms such as Amazon and eBay, he said: “I am very aware of the pressures that high streets are under and we look at all taxes at fiscal events.”

The Treasury minister also brushed off suggestions that HMRC was unprepared for the five-fold increase in its workload that was anticipated after Brexit, saying it now had sufficient funding and staff, and would “definitely” be ready for all eventualities, including a hard border in Ireland.

Contributor

Pippa Crerar

The GuardianTramp

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