eBay rejects UK plan for digital services tax

Global online marketplace eBay is calling for an international approach to digital taxation rather than countries adopting unilateral policies like the UK digital services tax

eBay is one of around 30 multinationals caught by the new digital services tax which is expected to raise £275m for the Exchequer and act as a deterrent to profit shifting when it comes into effect next month.

The UK is planning to introduce a digital services tax from 1 April, which will see the largest digital multinationals paying an annual 2% tax on digital sales, in addition to their corporation tax liabilities. This will capture sales of the largest US-based tech companies, including Amazon, Google and eBay, and is designed to curb aggressive cross-border tax planning.

Traditional bricks and mortar retailers, such as John Lewis and Sports Direct [Fraser Group], have been vociferous critics of the current tax environment, saying they are unable to compete fairly.

The tech giants benefit from locating for tax purposes in beneficial tax jurisdictions such as Ireland, the Netherlands and Luxembourg, and are able to conduct UK online sales while paying negligible UK corporation tax. They also have no fixed costs on the high street, including punitive business rates.

After criticism over the paltry amount of tax paid by the IT giants in the UK, there appears to be a growing acceptance by some of the tech giants that the outdated tax system needs to be reformed to reflect the modern business and retail environment where online is the dominant transaction medium.

‘For too long, the debate about the future of Britain’s high streets has focused on a false choice: online v offline. Nowhere is this more evident than in the debate around tax,’ Rob Hattrell, eBay UK vice president, wrote in a letter to The Times.

‘We recognise that the rules around corporation taxation need urgent reform and tech needs to pay its fair share. The debate is no longer about whether this should happen. It is about the best way of achieving this.

‘We believe this can be best done through an international OECD solution, rather than a patchwork of national measures.’

The OECD is working on proposals to introduce a global framework for digital taxation. There has already been wide consultation on the two pillar approach with December 2020 slated for release of detailed proposals for final review.

Deloitte head of tax policy Daniel Lyons said: ‘Everyone is waiting for what the OECD does, but I guess as the UK is entering into trade negotiations with the EU and US, it would be a negotiating tool but the amount that would be raised is not much, only around £275m for 2020-21.

A number of countries are taking a unilateral approach, with rules already in place in Australia, the UK, Austria, Spain and Poland, but pressure from the US government, particularly president Trump at Davos earlier this year, forced France to cancel its digital services tax which came into effect on 1 January.

The UK is also under pressure to delay or cancel its plans for the DST, which are detailed in Finance Bill 2020 and were the brainchild of former Chancellor Philip Hammond. These measures will only be temporary until the OECD digital framework is in place.

The new Chancellor Rishi Sunak can still reverse the tax plans, although some experts say it would be better to use it as a lever in US trade negotiations.

US Treasury secretary Steve Mnuchin has warned the UK that any tax on multinationals like Google and Facebook would result in increased US tariffs on UK imports.

Hattrell also called for urgent reform of the business rates, saying that ‘this isn’t just in the interests of high street retailers. It’s in all our interests. As a country we only succeed if we harness the entrepreneurialism of all small and medium-sized businesses – online and offline’.

Along with the majority of US tech giants, eBay has come under harsh criticism over its tax bills, although the company has always claimed it follows all the tax regulations in the countries in which it operates. In 2017, the company paid £1.6m in corporation tax despite UK revenues of US$1.3bn.

In the accounts for year end 2018, eBay stated: 'Management periodically evaluates positions taken in tax reutrns with respect to situations in which applicable tax regulation is subject to interpretation'. 

This followed a lengthy HMRC tax review following the expiration of the company's previous advance pricing agreement on its UK tax liabilities and arms' length transfer pricing arrangements.  

The company reached agreement with HMRC over tax issues relating to year end December 2016, which resulted in an additional tax charge of £7.14m for year ends 2015 and 2016, described as a UK corporation tax adjustment in the accounts based on the new transfer pricing deal.

By 2018 year end, eBay was paying an effective total tax rate 23% higher than 2017, due to the deferred tax settlement with HMRC which saw the company paying a £9.5m total tax charge on £40.6m profit before income tax.

Sara White

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