Opinion Former Article

International approach key when taxing the digital economy

The Chartered Institute of Taxation (CIOT) has welcomed today’s updated position paper from the Government on corporate tax and the digital economy. The CIOT is supportive of government attempts to review what activities constitute value-creation, but believes any changes should be introduced through international negotiation.

Glyn Fullelove, Chair of the CIOT’s Technical Committee, commented:

“Where value is created remains the most logical basis for deciding where and how much to tax multinational companies. Seeking international agreement on what the criteria for this should be is the most sensible way forward. The Government’s updated paper makes clear that they share both these views and we welcome this.

“It is reasonable to review what constitutes value-creation from time to time. Clearly the value of online platforms is often enhanced by users, so some value is created in the countries where the users are. It makes sense to reflect this in the way taxable profits are allocated to countries, given the system is based broadly on where value is created.

“However, although the value of online platforms is often enhanced by users, typically the bulk of the value will still be created where the platforms are developed. There is a danger that, if that is properly recognised, those critics who would like to see (mainly US) platform providers taxed on a significant share of their revenues from outside the US will be disappointed – or, if it is not, the Government will have been tempted into measures that move beyond the value creation principle.

“It is important the Government acts in co-operation with other states as far as possible, as unilaterally abandoning the currently negotiated international approach to allocating taxable profits between countries would certainly risk retaliation, double taxation and perversely, new arbitrage opportunities. This could increase rather than assuage public dissatisfaction – and damage rather than boost the net revenues available to the UK.”

Glyn Fullelove added:

“Nevertheless, this is a thoughtful paper that clearly reflects the responses to the earlier round of consultation from the CIOT and others and does justice to the practical issues raised. Consultation over complex tax issues is the right approach. We are hopeful that the analysis will contribute successfully to ongoing international negotiation over taxing rights and more consistent and modernised national policies.”

Notes for editors

1.       The Chartered Institute of Taxation (CIOT)

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.

The CIOT’s 18,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

Contact: George Crozier, Head of External Relations, 0207 340 0569 or GCrozier@tax.org.uk (Out of hours: 07740 477 374)

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