Online sales tax deemed illegal under EU rules

online tax
// Introducing an “Amazon tax” for online retailers deemed illegal under EU rules
// Chancellor had said he was considering the introduction of such a tax
// Tesco & Sports Direct CEOs, the government’s high street advisor all support Amazon tax

The chances of the government introducing an online sales tax has hit a major snag after the finance minister’s office confirmed it would be illegal under EU rules.

It comes several months after Chancellor Philip Hammond first said he was considering the introduction of an “Amazon tax”, in an apparent attempt to level the playing field as physical retailers are slugged with rising business rates.

“This is about international tax arrangements, because most of the online businesses are international businesses,” Hammond said in August.

“If we can’t get international agreement to do this we may have to look at temporary tax measures to rebalance the playing field.”

However, under EU state aid rules it is illegal for EU countries to give financial advantage to some companies and not others in a way which could distort fair competition.

The point was brought up in a letter by Mel Stride, the financial secretary to the Treasury, who wrote to Treasury Select Committee chair Nicky Morgan and said there was a “high risk” that any such tax could breach the rules.

Stride said the “tax proposals including new taxes have been judged to constitute state aid in the past”, and that an online sales tax “could distort competition.”

Although the UK is due to leave the EU on March 29, the draft withdrawal agreement – which was overwhelmingly rejected by MPs last week – states that the UK would stay in “dynamic alignment” on EU state aid rules.

Hammond’s Budget last autumn only detailed a narrowly-targeted digital services tax due to go live in April 2020, targeting technology giants operating in the UK with at least £500 million in global revenue.

The news comes after a series of high-profile retailer figures publicly lent their support for the so-called Amazon tax.

Earlier this month, the government’s advisor on the high street, Sir John Timpson, told parliament that “it is quite clearly the right thing for government to do”.

“There is far too much of an advantage for internet shopping,” he said.

Tesco chief executive Dave Lewis has also urged the government to introduce a tax for goods sold online, while Sports Direct chief executive Mike Ashley said such a tax would save the high street.

Meanwhile, the New West End Company, representing over 600 retailers in the capital’s West End entertainment and shopping precinct, urged the government to implement a business rate reform which would eliminate inequality between high street and online retailers.

According to business rates specialists at Altus Group, Amazon paid £63 million last year in business rates while raking in £8 billion of revenue in the UK.

However, Debenhams and Next each paid £80 million in business rates last year on UK revenues of £2.3 billion and £4.1 billion respectively.

Altus Group head of business rates Robert Hayton said a solution was urgently needed.

“Traditional bricks-and-mortar retailing is obviously property intensive,” he said.

“Their reliance on property leads to a larger tax to turnover ratio that, if left unchecked, will contribute to the further deterioration of our high streets.

“If an online sales tax for large online retailers would be deemed unlawful, the government urgently needs to develop a coherent strategy to address the current imbalance.”

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