It is time that the competition and markets Authority (CMA) took a look at the market dominance of the ‘Big Tech’ businesses in the UK and HMRC looked at how these sorts of businesses are taxed, say tax and advisory firm Blick Rothenberg.
David Hough, a partner at the firm shares his thoughts.
Google and Amazon profits have just been announced and the figures for both are staggering. Now is the time for both the CMA and HMRC to take a close look at how ‘Big Tech’ is both managed and taxed.
Amazon’s sales skyrocketed, generating sales in the three-month period between April and June of $89bn (up 40% on the same period last year). Growth is achieved through a combination of increased sales through the Amazon marketplace but also reflects more businesses using Amazon Web Services to improve their online offering. The surge in demand has also led to increased employment with 175,000 jobs created worldwide at Amazon and with further expansion expected this will continue to create jobs and increase requirements for distribution and warehousing space.
Investment like this provides a welcome boost to the commercial property sector and the wider economy and creates tax paying jobs. But the Government must now look at how ‘Big Tech’ is taxed in the UK. It will be a fine line especially as the Government will wish to ensure that, that some of that investment is made in the UK.
Google’s revenue from advertising dropped $2bn (approximately 10%) when comparing April to June with the same period last year. The impact of the Coronavirus pandemic has seen businesses reign in advertising spend to preserve cash but also consumers were less likely to use search functionality due to a combination of lower incomes, uncertainty and social distancing restrictions.
The group still made $7bn in net income in the quarter. The economic challenges caused by the Covid-19 impact are felt widely, but online businesses are set to come out of this situation stronger than they went in. Ultimately more people are beginning to buy more products and services online and this is good news for Google as consumers do their ‘window browsing’ through search engines.
The relative success of ecommerce during the pandemic reflects a fast-forwarding of digitalisation in recent months. Online sales levies are widely touted to capture some additional revenue for the Treasury as retailers feel they are disadvantaged by property rates. However, as the results for Google shows, just because you are an online business doesn’t automatically mean that revenues have increased exponentially during the pandemic. A blanket online sales levy which would most likely be passed onto the consumer is not the fairest way to tax these companies. Previous estimates suggested that a digital sales tax would raise £500m a year but in relative terms this is not a significant amount when compared to the cost of Covid-19 pandemic, representing in excess of £10bn a month in furlough payments alone, and such a tax being a political hot potato when negotiating trade deals.
Increasing the rate of Corporation Tax for example, and ensuring all appropriate profits are captured would raise additional revenues which can be used to both balance the books following the pandemic, allow a reform of business rates and provide funding for regeneration projects. A tax on profits also protects businesses that have been adversely impacted by the pandemic. Ultimately, we need to decide what form of high street or smart cities we want in when this situation is eventually past us. The shift to online sales is here to stay due to a combination of convenience, ease of comparison, and price so before taxing the online sellers to fund infrastructure on projects, that might not fit our new normal. We should look at how we invest in technology to help other companies take advantage of new ways of working.
The figures that have been announced are staggering and the Competition and Markets Authority (CMA) should be looking to address marketplace dominance of the Big 4 Tech businesses. Perceived lack of options drives consumer decision making perpetuating the challenge to new businesses, the success of which are crucial to growing an economy. Amazon is now making sales of $1bn a day and recently announced a move into free food delivery looking to further its market dominance. The CMA stepped in when Sainsbury and Asda announced plans to merge in 2019, intending to a create a business with annual sales of £51bn, less than Amazon’s revenue for the last three months. Reducing competition generally leads to increases in prices and gives consumers less control on how they spend their money but also where their data is captured.