George Osborne’s task over the past few years would have been lot easier if the big US technology multinationals had paid more tax. Only now, however, are the tax authorities waking up to the free ride enjoyed by these firms for years. Facebook, which paid £4,327 in corporation tax in 2014, the equivalent of loose change, is to start doing what it always should have done: booking British sales here rather than rerouting them to Ireland.
Facebook is responding, and not just in Britain, to a realisation that neither the tax authorities nor public opinion were prepared to allow the tax avoidance that had become the norm to persist. In the case of Britain, its actions appear to have been driven by the government’s diverted profits tax. It is still not clear how much tax it will pay; the sales it books in this country will be offset by a range of costs before becoming taxable profits, including its generous stock option scheme for staff. If it emerges that Facebook’s tax bill ends up being similar to the £130m deal struck with Google in January, on tax and interest dating back to 2005, there will be widespread anger.
The Facebook and Google deals are also a reminder of the challenges of dealing with firms with unconventional business models. The recent tie-up between Morrisons and Amazon hit the share prices of other supermarkets. For years “bricks and mortar” retailers have complained about Amazon’s unfair advantage: the ability to undercut prices because of not having to maintain an expensive high street estate. Now the supermarket chains are facing a similar threat.
As consumers we embrace ecommerce and low prices. But we should ensure that the competition takes place on a level playing field.