Autumn Budget 2017: UK proposes new approach to taxing digital multinationals

Responding to today’s Budget Statement, Jim Meakin, head of tax at RSM said:

‘With the chancellor under such intense political and fiscal pressure – and with his personal future in doubt - it was difficult to know whether today’s Statement would go with a bang or a whimper. But with the OBR reducing its growth forecast from 2 per cent to 1.5 per cent for the coming year, the Chancellor had little choice but to opt for the latter.

‘There were promises about stimuli for the housing market including a centrepiece stamp duty land tax threshold of £300,000 for first time buyers. It is hoped that the review of ‘land banking’ by developers will also speed up much needed residential development but the jury is out on whether these measures will be more successful than others which have not delivered what was hoped for.

‘There were some high impact announcements about infrastructure investment in the regions, but from a tax perspective, the centrepiece was a review which will conclude in early 2018 looking at how our tax system addresses the digital economy. 

‘This undoubtedly requires overhaul as the existing tax rules largely date back to the early 20th century and don’t reflect how digital businesses currently generate revenues across multiple jurisdictions often without significant physical presence. 

‘What’s interesting is that the UK is seeing itself very much as a thought leader, diverging from the international approach by proposing new solutions for taxing businesses that derive most of their value from user activity on their platforms, for example social media companies. 

‘This is similar to the approach adopted by the UK when it introduced the diverted profits tax to tackle what it perceived to be avoidance by multinationals.

‘This suggests that the UK is trying to shape the direction of the international taxation debate while still maintaining its support for OECD initiatives.

‘Today’s Statement also outlined measures to raise an additional £4.8bn over the next five years through the continued drive against tax evasion and avoidance. This will be supported by a £300m investment in new HMRC resource – both in terms of people and technology – to make the existing measures stick.

‘While there was a welcome increase in the rate of R&D tax relief under the scheme available for larger companies there was no sign of anything specific for SMEs – despite his comment that they are a significant engine of growth in the economy.’