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  • Is the Government’s Bashing of Twitter on Tax really ‘Fair’?

    19 September 2019

    Andy Wood

    Is the Government’s bashing of Twitter on tax really ‘fair’?

    Since the summer of 2016, it’s become increasingly apparent that politicians in London and Brussels aren’t exactly on the same page.

    The vexing issue of Brexit has not so much generated a mild disagreement as barely-concealed hostility, such as Luxembourg’s Prime Minister being prepared to ’empty chair’ his British counterpart, Boris Johnson.

    That difference of opinion isn’t simply theoretical and doesn’t just relate to whether Britain should remain a member of the European Union or the shape future relations between them might take.

    It is already part of the here and now on matters digital, for instance.

    Digital Services Tax (DST) – The History

    Last October, the pro-European Chancellor of the Exchequer, Philip Hammond, broke ranks with Brussels and announced that he was minded to introduce something called a ‘digital services tax’ (DST).

    It was, he said, intended to be a “narrowly targeted” tax but it’s clear who or what was in his sights: the technological giants bestriding the digital age. Mr Hammond opined that “it’s clearly not sustainable, or fair, that digital platform businesses can generate substantial value in the UK without paying tax here in respect of that business”.

    A policy paper enlarging on those thoughts was published only days before he was replaced in 11 Downing Street. Broadly, it outlined how, from April 2020, there will be a new two per cent tax on the revenues of “search engines, social media platforms and online marketplaces which derive value from UK users”.

    As I wrote shortly after the DST paper was released, alongside details of how it would operate was another reference to the idea of fairness, although it made a subtle if significant moved from being fair to those having to pay it to the beneficiaries among the British electorate (“ensure large multinational businesses make a fair contribution to supporting vital public services”).

    Twitter, Facebook, Amazon and others…

    Mr Hammond and his European peers had already explored the possibility of putting a much broader directive in place to rack up more cash from likes of Twitter, Facebook, Amazon and others.

    To avoid the appearance of these efforts effectively amounting to harassment by Treasury, the Brussels’ parliament described them as merely trying to [deep breath] “improve fairness and efficiency of the EU tax systems”.

    Months before the UK’s proposals were aired, the Economic and Financial Affairs Council could not reach agreement on how best to proceed.

    By the time that the EU is able to consider a fresh approach, Britain’s tax will have taken effect. Given the tone of the debate both among British MPs and media, it’s not a surprise. The big tech firms will be forgiven for thinking that they can’t do right for doing wrong.

    Only in recent days, for instance, Twitter has been given a thrashing over the publication of its latest annual figures.

    Sound tax management is interpreted as “a rebuff to growing pressure on Silicon Valley giants to hike their payments to the exchequer”

    There is nothing, of course, which obliges it to do so, just as we shouldn’t feel compelled to pay HMRC more than we have to.

    What aroused commentators’ ire this time was that Twitter’s “final tax bill” for 2018 is set to be considerably lower than the year before despite turnover increasing by one-third and operating profits rising by 44 per cent.

    That it seems to have been achieved by legitimate means appears irrelevant to Twitter’s critics, some of whom patently fail to comprehend the difference between the ‘clicks and bricks’ operations of digital and more traditional enterprises.

    When the DST was first mooted by Philip Hammond, for example, one MP even attempted to draw a parallel between Twitter’s taxes and the amounts paid in business rates by a leading UK supermarket, as if they might ever be practically comparable.

    Such arguments make clear how the DST is fundamentally a populist measure with echoes of the bank payroll tax introduced by Labour’s Alistair Darling in his December 2009 Budget in response to demands to curb the enormous bonuses pocketed by already well-remunerated figures in the Square Mile.

    For the Treasury and the tabloids, it would seem, big is not necessarily beautiful when it comes to bankers and foreign-owned tech behemoths.

    If you have any queries about this article or any other tax matters then give us a buzz.