"As the world moves to a cashless society and digital economy, we are glad to see that the Government is further consulting on these matters, rather than rushing through new legislation with little thought,” says Genevieve Moore, partner and head of corporate tax at Blick Rothenberg.
Tax and the digital economy
The Government continues to try and grapple with the digital economy, and is looking at how the UK can grab its 'fair share' of tax on income generated in the UK where the value may be attributed to the UK user base. This is an extension to the Consultation Document released following the 2017 Autumn Budget, and seems clear that the Government is keen to introduce interim taxation measures which would apply until such time as the OECD and EU can work together to design and implement a multilateral solution.
The issue here is that the basis of international taxation is such that the profits of a business are taxed where the value is created, regardless of where the sales are made. This means an extremely profitable business which is located outside of the UK could sell millions to UK customers, but under current tax laws would not be subject to UK corporation tax.
The difficultly, and what the UK Government is trying grapple with, is distinguishing between simply UK sales made to UK customers by an international business, and where the UK users are contributing towards the creation of that “value”. And in this context – how do you define value?
I’m pleased to see that the Government is further consulting on this matter, rather than rushing through new (badly thought out) legislation, but suspect we will be presented with 200+ pages of new tax legislation on this matter later in the year. Whilst I can see their point of view, this doesn’t sit well with the principals of international taxation, and it will be interesting to see how any proposed changes to UK tax law would interact with the 100+ tax treaties the UK has internationally.
Additionally, the Government needs to ensure that any policy or law changes do not have a negative impact on the multinational organisations’ view of the UK market or the UK users. Ultimately any costs or taxes imposed on these businesses may be passed on to the UK user group.
Cash and digital payments
I’m pleased to see the Government launch a call for evidence on cash and digital payments – is this the start of the end of the “I’ll do you a deal for cash” economy?
Whilst it’s important to acknowledge there is still a need for cash in society for many people (c2.7m according to the Government paper), and whilst most cash based businesses are legitimately declaring their income and paying the correct taxes, there is no doubt part of the UK 'tax gap' is attributed to the cash based hidden economy, something which in a cashless society wouldn’t be possible (or would be significantly harder!).
HMRC are inviting views and opinions from businesses and individuals to understand the need and role for cash in today’s society, with a view to understanding how the UK can address this hidden economy whilst protecting the individuals who still rely entirely on cash as a method of payment.
I’m pleased to see the consultation document launched today and will watch with interest to see how the UK moves forward with this.
For more information, please contact Genevieve Moore.