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November 20, 2019updated 21 Jan 2021 9:56am

Labour proposes additional tax of tech giants to fund free broadband

Last week UK Labour party leader Jeremy Corbyn announced that he would make efforts to partly renationalise BT in order to provide free broadband for all, the cost he says would come from additional tax levied on the likes of giant tech corporations such as Facebook and Google.

Speaking at the University of Lancaster on Friday 15 November, he said broadband would be available free in every home and he stressed that the tech corporations footing the bill would be taxed fairly. He urged that public broadband must be considered as a public service, commenting that “what was once a luxury is now an essential utility”.

Moore Kingston Smith’s head of tax Tim Stovold provides further comment:

“Taxing tech giants is often referred to by political parties as being the solution to any funding gap – there is generally public outcry when, for example, Facebook publish their accounts showing a corporation tax liability of £28m ($36.1m) which was likely to be matched with a research and development credit of at least that amount, meaning no payment of corporate tax would have been made to the Treasury at all.

“John McDonnell, the UK’s shadow chancellor, has indicated that he would follow an approach suggested in Public Services International’s report titled, “Taxing Multinationals: A New Approach”. This report suggests a “unitary” approach to taxing large corporations where a formula based on global sales, labour, and assets should determine how much global profit should be taxed in the UK. The Labour press release indicates that the UK would be prepared to “go it alone” on making these changes, although it would also “champion the framework internationally”.

“There is already a significant amount of work being carried out by the OECD. In continuation on an on-going project, on 8 November 2019, a consultation document was launched (“Global Anti-Base Erosion Proposal (“GloBE”) – Pillar Two”). This is seeking to address the tax challenges arising from the digitalisation of the economy. This is a global initiative that is intended to bring about significant changes to the international tax architecture, with changes being made to the domestic law of the participating countries and the tax treaties which govern the relationships between these countries. The intended outcome of this project is to ensure that each country is able to collect its fair share of the tax payable by multi-national businesses.

“To ensure that a fair basis of taxation is developed for large multi-national technology groups, it is generally accepted by all parties that global action is preferred to unilateral country-by-country actions. The question is, therefore, whether the UK imposing a harsher basis of taxation than its near neighbours in Europe will do more good than harm for the Treasury. As much as there may be a general sense of unfairness in relation to the corporate tax paid by tech companies such as Facebook, Facebook UK Limited did pay more than £45m in employers’ National Insurance during the year ended December 2018, kept nearly 2,000 people in skilled employment and, through the deduction of tax and employees’ NI at source from the salaries paid, would have paid over £150m as PAYE payments.

“The Labour party have ear marked £20bn towards their free and expanded broadband policy (although others have estimated the costs at a much greater amount). To collect this tax from tech companies in the short term may prove difficult. So, playing the longer game of waiting for the OECD project to reach its conclusion may provide for more sustainable longer term revenues from tax collection, without the risk that tech companies will relocate to jurisdictions that do not rush ahead of the OECD changes.

“In the meantime, without the windfall tax collection from tech companies, as a lower cost policy, perhaps whoever is in government would consider re-opening the hundreds of public libraries which have been closed over the last ten years and re-inventing them as community tech hubs where high speed internet connections are available to those who do not have them at home.”

Last week UK Labour party leader Jeremy Corbyn announced that he would make efforts to partly renationalise BT in order to provide free broadband for all, the cost he says would come from additional tax levied on the likes of giant tech corporations such as Facebook and Google.

Speaking at the University of Lancaster on Friday 15 November, he said broadband would be available free in every home and he stressed that the tech corporations footing the bill would be taxed fairly. He urged that public broadband must be considered as a public service, commenting that “what was once a luxury is now an essential utility”.

Moore Kingston Smith’s head of tax Tim Stovold provides further comment:

“Taxing tech giants is often referred to by political parties as being the solution to any funding gap – there is generally public outcry when, for example, Facebook publish their accounts showing a corporation tax liability of £28m ($36.1m) which was likely to be matched with a research and development credit of at least that amount, meaning no payment of corporate tax would have been made to the Treasury at all.

“John McDonnell, the UK’s shadow chancellor, has indicated that he would follow an approach suggested in Public Services International’s report titled, “Taxing Multinationals: A New Approach”. This report suggests a “unitary” approach to taxing large corporations where a formula based on global sales, labour, and assets should determine how much global profit should be taxed in the UK. The Labour press release indicates that the UK would be prepared to “go it alone” on making these changes, although it would also “champion the framework internationally”.

“There is already a significant amount of work being carried out by the OECD. In continuation on an on-going project, on 8 November 2019, a consultation document was launched (“Global Anti-Base Erosion Proposal (“GloBE”) – Pillar Two”). This is seeking to address the tax challenges arising from the digitalisation of the economy. This is a global initiative that is intended to bring about significant changes to the international tax architecture, with changes being made to the domestic law of the participating countries and the tax treaties which govern the relationships between these countries. The intended outcome of this project is to ensure that each country is able to collect its fair share of the tax payable by multi-national businesses.

“To ensure that a fair basis of taxation is developed for large multi-national technology groups, it is generally accepted by all parties that global action is preferred to unilateral country-by-country actions. The question is, therefore, whether the UK imposing a harsher basis of taxation than its near neighbours in Europe will do more good than harm for the Treasury. As much as there may be a general sense of unfairness in relation to the corporate tax paid by tech companies such as Facebook, Facebook UK Limited did pay more than £45m in employers’ National Insurance during the year ended December 2018, kept nearly 2,000 people in skilled employment and, through the deduction of tax and employees’ NI at source from the salaries paid, would have paid over £150m as PAYE payments.

“The Labour party have ear marked £20bn towards their free and expanded broadband policy (although others have estimated the costs at a much greater amount). To collect this tax from tech companies in the short term may prove difficult. So, playing the longer game of waiting for the OECD project to reach its conclusion may provide for more sustainable longer term revenues from tax collection, without the risk that tech companies will relocate to jurisdictions that do not rush ahead of the OECD changes.

“In the meantime, without the windfall tax collection from tech companies, as a lower cost policy, perhaps whoever is in government would consider re-opening the hundreds of public libraries which have been closed over the last ten years and re-inventing them as community tech hubs where high speed internet connections are available to those who do not have them at home.”

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