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Digital tax for big tech companies.

Tax
 The world’s largest tech com­pan­ies are expec­ted to «cir­cum­vent» the gov­ern­ment’s spe­cial tax on digital com­pan­ies before new inter­na­tional rules are imple­men­ted, an influ­en­tial group of MPs has warned.

In a report pub­lished yes­ter­day, the House of Com­mons pub­lic accounts com­mit­tee found that the digital ser­vices tax raised £358mn from 18 com­pan­ies in its first year — 30 per cent more than expec­ted. But it warned that the «suc­cess­ful imple­ment­a­tion» of the levy in 2020-21 was unlikely to con­tinue.

Min­is­ters brought in the new digital ser­vices tax in 2020 as a tem­por­ary meas­ure to address con­cerns that tech com­pan­ies were declar­ing very low profits in the UK by divert­ing profits made on UK sales to coun­tries with lower cor­por­ate tax rates.

Other coun­tries such as France, Spain, Italy and Tur­key imple­men­ted sim­ilar meas­ures. However, most, includ­ing the UK, have said they would repeal the levy once an OECD agree­ment, which would allow coun­tries to tax an ele­ment of the largest mul­tina­tion­als’ profits where they make their sales, is imple­men­ted.

While the pro­cess is pro­gress­ing at the Paris-based inter­na­tional organ­isa­tion, there are few signs that the US Con­gress will rat­ify any agree­ment even if the Biden admin­is­tra­tion were to sign up.

Neil Ross, asso­ciate dir­ector of policy at industry group TechUK, rejec­ted the sug­ges­tion that busi­nesses would seek to cir­cum­vent the tax as «sur­pris­ing and unfoun­ded». He added: «From our per­spect­ive, com­pan­ies are try­ing to get clar­ity and inform­a­tion out of HMRC to com­ply. But HMRC was very slow and not effect­ively resourced».

But he agreed that the digital ser­vices tax was a «second-best option . . . Polit­ical atten­tion should be focused on get­ting the OECD frame­work agreed».

The Treas­ury and HMRC also dis­missed the PAC’s warn­ing that com­pan­ies would cir­cum­vent the tax, point­ing out it was rel­at­ively accessible to oper­ate.

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