Big Four Tax Leaders Cast Doubt on Digital Economy Consensus

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By Ben Stupples

Tax policy leaders at the world’s largest accounting firms have cast doubt on the prospects countries can find a common solution on reforming tax laws for internet-based companies.

In his March 13 Spring Statement speech, U.K. Chancellor Philip Hammond said he’s looking ahead to discussing how to tax internet-based businesses with Group of 20 finance ministers.

Yet Bill Dodwell, head of U.K. tax policy at Deloitte LLP, told Bloomberg Tax he doesn’t expect countries to reach a consensus on taxing the digital economy, due to resistance on the issue from the U.S.

In a March 13 statement, EY’s global head of tax policy, Chris Sanger, similarly described the chances of finance ministers reaching a consensus as “difficult,” and warned on the subsequent impacts.

“In the absence of consensus, we may well be facing many years of double taxation, as countries like the U.K. apply taxes on turnover and others retain their approach to taxing profits,” he said. “Such double taxation will make developing the U.K. more expensive, reducing the U.K.’s attractiveness.”

The comments come after the U.K. Treasury March 13 published an update of its November 2017 policy paper on the taxation of internet-based businesses. The update included plans for a sales levy on these companies, a move that would see the U.K. copy measures from Italy and India.

European Commission, OECD Prepare Digital Tax Recommendations

Following the rapid rise of internet-based businesses, governments worldwide are trying to modernize their tax laws to adapt to how digital companies make huge profits by creating value from customers in their jurisdiction. The European Commission and the OECD will both publish interim reports on how to reform the taxation of the digital economy by the end of next month.

G-20 finance ministers will meet in Buenos Aires March 19 and 20. They will have a second meeting in Washington on April 20.

In its policy paper update, the Treasury said a sales tax is only a temporary solution, and that it would prefer to introduce the tax alongside other countries.

“The U.K. continues to support the EU’s position that a tax on sales is needed in the interim, pending broader change,” Dodwell said in a March 13 statement. “This remains challenging, since business profitability varies wildly, and a new tax could apply to large loss-making businesses.”

To contact the reporter on this story: Ben Stupples in London at bstupples@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bloombergtax.com

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