EU disagrees over plans for digital tech tax following Hammond’s Budget promise

EU negotiations for a digital tech tax are not going quite as smoothly as Philip Hammond’s decision to apply one to the UK

Following Fiscal Phil’s announcement in the Budget that a new digital services tax on big technology companies like Facebook and Google would soon apply, the EU member states are struggling to make a global agreement of the same nature.

The EU are said to be fearful of a potential US retaliation, which is what is stopping them from reaching a consensus.  To pass the plan, approval is needed from all 28 EU member states, and currently there have been many objections.  Proposals are for a three percent tax on the revenues of large technology companies, which mostly have origins in the US.  The implementation of a worldwide tech tax is therefore not likely to be implemented for some time.

Chancellor Philip Hammond last week announced the UK would launch its own digital services tax on the UK revenues of these companies.

Britain followed other countries such as Spain and Italy in launching its own version of this tax. Hammond made the announcement last week in his 2018 Budget speech, where he promised the tax would only to apply to profitable companies with sales of more than £500m globally.

He said: “We will ensure we get it right so UK remains best place to start and scale a tech business.”

The EU disagreement comes just a day after Hammond publicly defended his new digital tech tax.

He pointed out that while the tax will be a topic to debate between the UK and the US, the US itself has a tax reform act which is arguably discriminatory towards any non-US companies.

He said “everyone recognises it’s a problem” that the EU is failing to come to an agreement.

France and Austria both wanted a global bill to be agreed by the end of 2018, but came to a compromise which would pressurise the OECD to deliver a plan.

France today announced it would only hold of on implementing its own digital services tax in place of a global one until the end of 2018.

The nation claims that bringing in the tax would be the perfect way to win votes in the next European Parliament elections.

France’s Bruno Le Maire said the EU draft bill was “due to be adopted in December 2018… but we are open to postponing the entry into force to allow time for the OECD to make a more comprehensive proposal”.

Tame the beast!

Taxpayer was victim of HMRC cock-up

Michael Griffiths (TC06697) was the victim of a PAYE foul-up by HMRC which resulted in his being served with a notice to file a self assessment tax return for 2013/14.

HMRC’s PAYE computer issued Griffiths with a tax calculation on 31 May 2014. Unfortunately, it only took into account one of his two employments and generated an overpayment of £579.80. A payable order was issued on 1 June, which he received on 3 June and duly banked.

Meanwhile, on 2 June, the computer issued a revised calculation which took account of all his income. Griffiths had, in fact, underpaid tax by 80p for the tax year (which would have been simple either to code out or to discharge). However, because of the payable order issue one day earlier the consequence was an “underpayment” of £581.60

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Input tax recovery

In an important judement delivered at the end of June the Court of Appeal (Civil Division) held that Input VAT could not be recovered in the absence of an invoice showing VAT had been charged.

The court ruled that ‘in the absence of a VAT invoice showing that VAT was charged to Zipvit by Royal Mail’, Zipvit could not recover any input tax (even if that input tax was ‘due and paid’). Although HMRC do have discretion to accept evidence which does not fully comply with the statutory requirements for a VAT invoice, the court found that there was no support in the legislation or case law ‘for the proposition that a right to deduct may be recognised and given effect without production of a VAT invoice showing that the tax in question has been paid by the supplier’.

Full story HERE

MTD – An update

HM Revenue and Customs updated their guidance on Making Tax Digital (MTD) last week.  It’s not the easiest of reads but it does set the tone to what to expect when this burdensome legislation comes into force in April next year.  Most important takeaways for us are the digital record keeping requirements and the digital links definition that flows from that.

Digital Links

The “functional compatible software” in which the VAT information is recorded can be a number of software programs, products, applications or spreadsheets which are digitally linked together. A digital link is an electronic or digital transfer or exchange of data between software programs, products or applications.

The VAT notice warns that the use of “cut and paste” does not constitute a digital link. However, using digital links between software to transfer data needed for the VAT return won’t be compulsory until VAT periods starting on or after 1 April 2020. This constitutes the “soft landing” which HMRC have said will be applied in the 1st year.

HM Revenue and customs latest guidance can be found HERE