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.”