It is unclear if big tech firms are paying the correct amount under the UK’s newly introduced digital service tax, according to a Public Accounts Committee report.
Despite the 2% tax on UK-generated digital revenues raising £358mln – 30% more than expected – in its first year from April 2020, there is “continuing uncertainty” over how much should really have been paid, the committee said.
The tax aims to prevent big technology firms, such as Alphabet Inc (NASDAQ:GOOG), Apple Inc (NASDAQ:AAPL) and Amazon.com Inc (NASDAQ:AMZN), from shifting profits overseas by dipping into revenues from UK operations directly.
However, due to knock on effects from the coronavirus pandemic, “it remains unclear whether future revenues will meet or exceed the projected £3 billion by 2024–25,” the committee explained, when the tax will be reviewed.
The committee also expressed concern that a newly reformed global tax from the Organisation for Economic Co-operation and Development (OECD), aimed at ensuring technology firms pay up in the correct country, will not be implemented as expected by 2024.
This could lead to the temporary digital services tax being extended, it warned, prompting it to call on HMRC to prepare for future cases of companies avoiding payments.
“We are concerned that this may prompt businesses within the scope of the tax to consider using the huge resources and expertise at their disposal to circumvent the tax,” the committee said. “HMRC will need to be ready for that scenario, with robust measures to ensure compliance in the longer-term if needed.”
“HMRC will need to be ready for that scenario, with robust measures to ensure compliance in the longer-term if needed.”