Treasury mulls temporary ‘digital sales’ tax charge

UK digital and tech businesses have been rocked by the news that the HM Treasury is examining a ‘temporary tax charge’ on companies that have ‘cashed-in on the coronavirus’.

This weekend, the Sunday Times cited ‘leaked emails’ by a Treasury ‘policy unit’ that proposed the department to introduce a temporary tax charge on companies that have generated ‘excessive profits’ during the pandemic.

The Treasury is reported to be reviewing a number of tax options in how the government will ‘plug holes in its budget finances’, following a year in which it borrowed £280 billion to cope with the pandemic’s costly impacts.

Recording a 51% increase in UK sales to £19.5 billion, US tech giant Amazon was reported as one of the companies targeted by the report to pay a ‘one-off Covid tax on windfall profits’.

Online retailer ASOS, UK supermarkets and home delivery firms Ocado, Just-Eat and Deliveroo were mentioned as further companies that should pay the temporary charge.

The report made no mention of UK gambling firms or online payment services providers, whose financial results varied during 2020.

Leading the Treasury, Chancellor Rishi Sunak is reported to be in ongoing discussions with a diverse range of UK business leaders, as he prepares to deliver the UK’s Spring Budget on 3 March – showcasing new support schemes for pandemic impacted businesses.

A ‘point of online sales tax’, had been previously mooted by former chancellor Philip Hammond serving Theresa May’s government as a means to tackle the divisive issue of US tech giants tax avoidance.

To date, tech giants have routed all European digital sales through their registered corporate entities in Ireland (Dublin) and Luxembourg, avoiding full disclosure of earnings from individual European states, leading to friction with governments.

Meanwhile, for fast-growth tech start-ups registering record sales, their profits can be discounted against venture financing costs, which state that companies have yet to reach profitability.  

Despite being presented to Sunak, the policy unit is reported to have advised the government not to implement any temporary tax measures for the reporting period of 2020.