Google Tax Update Spring 2018
Anyone who has spoken personally to me about this topic, will recall, depending upon their interest levels, a discussion around the volume of legislation open to HMRC and other international tax authorities to counteract profit erosion (polite term), profit shifting, dividend shifting and premium payments for intellectual property assets, rights and similar. There are both very broad and very narrow avenues of counteractive legislation HMRC may invoke where, simply, a tax ‘advantage’ is perceived (rather than established). This ‘advantage’ may be open to a corporate, individual or unincorporated entity and there are countless tax cases where HMRC have invoked anti-avoidance legislation. Not only that but the enhancement of State Aid anti-competitiveness powers, penalties, advance payment notices et.al give real bite to the proper administration of these laws, long featured in UK tax law.
So I was surprised to read that the Financial Secretary to the Treasury has come up with the idea, aired in an interview with the BBC that a tax on revenue for large multinationals is currently a strongly preferred option. Rt Hon. Mel Stride MP explained that companies operating with large digital platforms should pay their ‘fair share’ of tax. Mr Stride accepted that although the share currently being paid was not perceived to be fair, this did not mean that the companies were not complying with current rules. He agreed that this would mean taxes for such companies would increase. He also recognised that there would have to be special provision for start-up loss-making companies with large turnovers. Although this is a useful insight into Government thinking and a clear indication of the direction of travel, it was not clear how this basis of taxation would dovetail either into existing international arrangements or more broadly would create a level playing field with the taxation of profits for other companies.
To me, a tax on turnover go completely against the base principle of taxation as a tax on ‘profits’ and returns us firmly back into almost Medieval times where various commodity taxes, because lets face it this is sector specific, were legislated by King John introduced an export tax on wool in 1203 and King Edward I introduced taxes on wine in 1275.
Why are we here? It seems clear to me that if HMRC has adequate taxing powers at their disposal, the complexity should be swept away and UK authorities should be given the proper resource to enforce the law. But clearly, witness the Luxembourg government / Amazon cases (still ongoing from 2006), this is timeous and open to frustration and delay.
Reason number two is of course that In June 1628, England’s Parliament passed the ‘Petition of Right’, which among other measures, prohibited the use of taxes without its agreement. This prevented the Crown from creating arbitrary taxes and imposing them upon subjects without consultation, but also means that when civil servants and Ministers ‘come up with an idea’ they are free to roll this out, rather than read and work with the existing legislation and regulations with care and resource the agencies enforcing them.