Treasury targets Facebook and Google with ‘fair’ tax system

The Treasury is threatening digital companies such as Facebook and Google with a new tax, as it pushes for global agreement on a fairer system for ensuring digital businesses pay their way.

The chancellor, Philip Hammond, is expected to use next month’s spring statement to announce the results of a consultation launched by the Treasury in November, on how to update the tax system to reflect the nature of online businesses.

The financial secretary to the Treasury, Mel Stride, told the BBC on Thursday that digital companies should pay “fair” levels of tax.

He suggested that could mean a system in which tax is levied according to where those companies earn their revenues – rather than simply taxing profits, which are easier to shift from one jurisdiction to another.

“At the moment [they] are generating very significant value in the UK, typically through having a digital platform with lots of users interacting with that platform,” Stride said.

“That is driving a lot of value, so you’re looking at social media platforms, online marketplaces, internet search engines – where at the moment the tax regime is not taxing those activities fairly.

“We want to move to a situation where we are taxing those activities fairly.”

Treasury sources said the government’s first preference would be to press for reforms to the international system at the Organisation for Economic Cooperation and Development (OECD), which helps the government coordinate tax policies.

But if progress cannot be agreed at a global level, Britain would be prepared to unilaterally enter into various changes, Stride said.

Several big digital companies have been criticised in recent years for paying very little tax in the UK, in some cases by engaging in complex avoidance schemes such as shifting the ownership of intellectual property to a low-tax jurisdiction.

Facebook recently announced a shakeup in the way it pays tax worldwide, amid mounting public pressure over whether footloose multinationals make a fair contribution to society.

The company was criticised for paying just £5.1m in corporation tax in the UK last year, despite revenues nearly quadrupling to £842.4m on the back of increased advertising sales.

Progress on reform at the OECD has been stalled by a division between some nations that would like to see internet firms taxed more heavily and others, such as Luxembourg and Ireland, which value the inward investment they receive by levying low levels of corporation tax.

Pascal Saint-Amans, the OECD’s director of tax policy, said recently: “Countries are left with a bitter taste in their mouths because there’s no agreement on taxing profits of digitalised companies.”

A recent report from the Royal Society of Arts suggested taxing Amazon, Facebook and Apple more heavily could be one way of paying for a universal basic income, to be paid to all citizens.