UK risks conflict with US by reigniting digital sales tax proposal

Lucy Harley-McKeown
·4-min read
Britain's chancellor of the exchequer Rishi Sunak, right, during a cabinet meeting. Photo: Photo by Simon Dawson/Pool/AFP via Getty Images
Britain's chancellor of the exchequer Rishi Sunak, right, during a cabinet meeting. Photo: Photo by Simon Dawson/Pool/AFP via Getty Images

The UK is risking conflict with the US as it is reportedly reigniting proposals to roll out a tax for online retailers.

According a report in The Times, UK chancellor Rishi Sunak is allegedly over mulling over whether to impose the new digital sales tax as the government tries to find ways to plug the hole in Britain’s economy, following the impact from the coronavirus pandemic.

The proposals come as part of a business rates review call for evidence published by the Treasury last week. It says it will “consider all elements of the current system, as well as exploring the potential strengths and weaknesses of alternative property and online taxes put forward as possible replacements for rates.”

In response to the pandemic, businesses are already benefiting from a one-year rates holiday in the retail, leisure and hospitality sectors. This is costing the government about £10bn ($13bn).

The document also highlights a potential capital values tax to replace the business rates system. This would see landlords shouldering higher burdens than retail tenants.

A Treasury spokesperson confirmed to Yahoo Finance UK the evidence is being considered as part of the broader business rates review but did not comment specifically on the digital sales tax.

Why a digital sales tax was paused before

Over the last year, the US government has hit back at plans from multiple European countries to impose a digital sales tax due to how many massive US corporations would be stung by such a levy.

Back in January, the UK was asked to pause its planned 2% tax on the sales of search engines, social media companies, and online marketplaces, which would have come into effect from April this year. This was in line with France.

The UK’s initial digital tax move came shortly after France imposed a new law last year. It was set to retroactively go into effect from early 2019 and would apply to any digital company with sales of more than €750m (£685m, $878m), in which 30 companies are expected to be affected.

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US treasury secretary Steven Mnuchin has previously hinted at possible tariffs on the UK if it presses ahead with plans for a tax on “big tech” companies.

A report last year accused six US tech firms — Amazon (AMZN), Facebook (FB), Google (GOOG), Netflix (NFLX), Apple (AAPL) and Microsoft (MSFT) — of “aggressively avoiding” $100bn of global tax over the past 10 years by moving sales and profits through low-tax countries such as Bermuda, Ireland, Luxembourg, and the Netherlands.

A recent report by the Independent showed that in Apple’s latest annual results filed at Companies House, Apple Retail UK revealed sales for the year to the end of last September of £1.37bn but largely “avoids almost all tax on UK sales.”

Apple said in a statement: “As the largest taxpayer in the world, we know the important role tax payments play in society and always pay all that we owe.

“We are very proud of our many contributions across the UK and last year spent over £2bn with hundreds of suppliers. Our investment and innovation supports more than 325,000 jobs in the UK and, in addition to our tax contributions, we also think it’s important to do more for people and society. We focused our attention on supporting the response to Covid-19, making significant financial contributions and donating face masks and shields here in the UK.”

Why the Treasury is eyeing up an online sales tax again

Digital sales now represent nearly one-third of purchases, a proportion that could continue to rise amid sporadic coronavirus lockdowns, while shoppers form new habits.

Imposing a tax would attempt to level the playing field with bricks and mortar retailers.

Even before the pandemic hit, research by RetailChoice showed that high street stores were losing out more than £18bn ($23.2bn) in sales each year as consumers found products in-store, before leaving and purchasing online.

UK retail sales rebounded strongly in June as non-essential shops reopened, according to data from the Office for National Statistics (ONS). It showed retail sales rose by 13.9% in June, far exceeding economists’ expectations of an 8% month-on-month rise.

ONS deputy national statistician for economic statistics Jonathan Athow pointed out that: “Online sales have risen to record levels, and now count for £3 in every £10 spent.”