Select Committee on European Union Written Evidence


Memorandum by the Inland Revenue and HM Customs and Excise

INTRODUCTION

This memorandum addresses the Sub-Committee's request for evidence on behalf of the Inland Revenue and HM Customs and Excise.

THE UK APPROACH

  2.  The Government is committed to ensuring that taxation is not a barrier to the growth of e-commerce but rather fosters a climate in which e-commerce can grow. At the same time tax revenues must remain secure so that public services can be properly funded.

OPPORTUNITIES AND CHALLENGES FOR TAXATION

  3.  At the end of November 1999, the Inland Revenue and HM Customs and Excise published Electronic Commerce: The UK's Taxation Agenda[86]. This set out the Government's policies and how the departments are meeting them and contributing to the Government's goal of "creating in the UK the best environment in the world in which to trade electronically by 2002[87]". The paper is a comprehensive review of both the opportunities and challenges that e-commerce presents for taxation and where the UK is in meeting them.

  4.  A copy of this paper is attached to this memorandum and forms the bulk of our evidence to the Sub-Committee. In particular, the Sub-Committee may wish to note the following chapters and topics:

    —  Chapter 1 which outlines measures the Government has taken to encourage enterprise, growth and investment.

    —  Chapter 4 which describes the many ways in which the departments are taking advantage of the developments in technology to improve the service we are offering our customers; and

    —  Chapters 5 to 8 which cover the issues for the taxation of e-commerce and the Government's position on them.

ACHIEVING INTERNATIONAL CONSENSUS

  5.  e-Commerce is a truly global phenomenon and, as the paper shows, international debate and co-operation have been crucial to the progress that has been made on finding global solutions to the taxation issues thrown up by e-commerce. International consensus is key to giving business certainty and to avoiding double taxation and unintentional non-taxation, as well as to ensuring that tax rules are enforceable.

  6.  To this end both the Inland Revenue and Customs have been playing a leading role in work in international fora. For direct taxes such as income and corporation tax, and indirect taxes such as the gambling duties, where there is currently no, or virtually no, external Community competence, the main forum is OECD where the UK is a key contributor. For VAT, which is essentially a European tax, the UK has been playing a significant role in work co-ordinated by the European Commission and has also been working closely with other countries in the OECD.

CONSULTATION

  7.  The Government is committed to involving the public and business in the debate on its policies on e-commerce. This is important in achieving the Government's objectives, ensuring that service delivery initiatives meet the needs of customers and taxation policy does not inhibit economic growth. Last year the Inland Revenue and Customs set up the Electronic Commerce Consultation Forum to widen consultation on the issues as described in Chapter 2 of the paper (paragraphs 2.17-2.10).

RECENT DEVELOPMENTS IN THE UK

  8.  Domestically, the Government continues to encourage the use of information technology. On 16 February 2000 the Chancellor announced details of one-off tax discounts for small businesses and individual taxpayers who file self-assessment, VAT or PAYE end of year returns over the Internet and pay any tax due electronically (Press Release 16 February 2000).

  9.  In his Budget speech on 21 March 2000, the Chancellor announced (Press Notices REV/C&E1 and CE1):

    —  100 per cent first year capital allowances for investment in Information and Communication Technology equipment by small businesses over the next three years (and Press Release 7 April 2000);

    —  investment by medium-sized businesses on e-related equipment will benefit from the permanent extension of 40 per cent first year capital allowances for spending by small and medium sized enterprises on machinery and plant;

    —  a £60 million package for advice, training and a secure infrastructure for communications between government, business and citizens;

    —  a further one-off discount for small employers paying tax credits to their employees and who file their PAYE end of year returns over the Internet and pay any tax due electronically; and an extension of the PAYE and tax credit discounts to small employers who file through an accredited Internet Payroll Service;

    —  the Inland Revenue Payroll Software Standard; and

    —  consultation on a modernised General Betting Duty in the light of e-commerce developments.

  10.  In line with the Prime Minister's announcement on 30 March (Cabinet Office News Release 30 March 2000), the departments will be working towards delivering all services electronically by 2005.

  11.  On 3 April 2000 regulations were laid before Parliament to support the filing of Income Tax Self Assessment returns. And on the same day taxpayers could begin registering for the new service which will commence around the end of April/early May.

  12.  On 11 April 2000 the Inland Revenue announced that the UK does not consider websites and servers, of themselves, sufficient to constitute a "permanent establishment" of e-commerce businesses—the threshold in the OECD's model tax treaty below which a country will not tax non-residents carrying on a business in that country (Press Release 11 April 2000).

  13.  These press releases and notices are attached and are submitted as evidence to the Sub-Committee together with a draft Regulatory Impact Assessment on Internet filing of tax information which has been published on the Inland Revenue website for information and comment (attachments not printed here).

EC PROPOSALS

  14.  The proposals for changes to the European VAT Directives, referred to in paragraph 6.34 of Electronic Commerce: The UK's Taxation Agenda are now expected to be presented to the European Council during May of this year.

CONCLUSION

  14.  The Government recognises that e-commerce presents both challenges and huge opportunities for taxation and tax administration. The work being done by the Inland Revenue and Customs to use the tools and techniques of e-commerce to assist taxpayers in their dealings with the departments, and to resolve and clarify issues for the taxation of e-commerce are playing an important part in achieving the Government's strategy for the success of e-commerce in the UK.

26 April 2000


86   Not printed here. Back

87   Benchmarking the Digital Economy, published alongside the White Paper Our Competitive Future Building the Knowledge Driven Economy (December 1998). Back


 
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