A push by Labour MPs to block multinational tech giants from claiming tax relief through the government’s “super-deduction” policy has failed, despite concerns that the system could be used by tech firms such as Amazon to further minimise the amount of corporation tax they pay in the UK.
MPs were called to vote on a series of proposed amendments to the forthcoming Finance Bill 2019-2021. Among them was a proposal that sought to preclude tech firms in-scope of the government’s digital services tax policy from making capital allowance claims through the super-deduction system.
The amendment, tabled by Labour leader Keir Starmer with the support of five other Labour MPs, failed to receive the number of votes required to action the proposal during the vote on Monday 24 May 2021.
This means tech firms that are liable to pay the digital services tax will still be able to use the super-deduction to claim tax relief on plants and machinery purchases, despite mounting concerns that this could offer the likes of Amazon a means to markedly minimise the amount of tax they pay in the UK.
“As the Bill stands, the [super-deduction] will finish the job Amazon started, wiping out the last bit of tax it had to pay on the few parts of its business, the profits of which it has been unable to shift overseas,” said Labour MP James Murray during the House of Commons debate ahead of Monday’s vote.
What is the digital services tax?
It is a 2% tax the UK government introduced in April 2020 on the revenues generated by search engines, social media platforms and online marketplace providers that “derive value” from UK users.
The tax applies to any of these providers whose global revenues exceed £500m, and where more than £25m of these revenues are derived from UK users.
The government said the policy was introduced to address the “misalignment” within the digital economy between where company profits are taxed and the place where value is created, given that many online businesses derive value from engaging with users around the world.
“Under the current international tax framework, the value that businesses derive from user participation is not taken into account when allocating the profits of business between different countries,” said the government policy statement. “This measure will ensure the large multinational businesses in-scope make a fair contribution to supporting vital public services.”
“A vote in favour of our amendment would stop Amazon and a small number of similar firms benefiting from a giveaway of public money – public money that could be better spent for so many purposes, including to support British businesses that have been struggling throughout the past year.”
Why stop tech firms using the super-deduction?
Announced in the March 2021 Budget, the super-deduction has been described by chancellor Rishi Sunak as the “biggest two-year business tax cut in modern British history” which the government claims will unlock £20bn a year in investment during the policy’s lifetime.
It is one of a number of different policies set out in the Budget to stimulate the UK’s post-pandemic economic recovery, with the super-deduction specifically focused on providing companies with financial incentives to invest in the “productivity-enhancing” plant and machinery assets they need to help their businesses grow.
The policy, which runs from April 2021 to March 2023, will achieve this by allowing firms to deduct 130% of the cost of any qualifying plant and machinery investments from their taxable profits, and make use of a 50% first-year allowance for any qualifying special rate assets.
According to the government’s own figures, this means qualifying companies can cut their tax bills by up to 25p for every £1 they invest, leaving them with more money to reinvest in their own business growth plans.
However, concerns have been raised since the policy was announced about the potential for it to be used by multinational tech firms that process their UK sales through overseas subsidiaries to minimise they amount of tax they pay in this country.
Speaking to Computer Weekly, Murray said this was precisely the type of behaviour the defeated amendment was intended to curb. “It is unacceptable that, for many years, multinational tech giants have been shifting their profits overseas while other businesses pay their fair share here in Britain,” he said.
“It cannot be right for the government to give those same large multinationals a further tax write-off, and so we attempted to prevent public money from being spent on a ‘super-deduction’ for the biggest tech firms.
“More widely, the government should be taking clear steps to curb tax avoidance by large multinationals and to level the playing field to stop British businesses being undercut.”
Online retail giant Amazon has frequently been cited in these discussions as an example of a firm whose operations falls into the category outlined by Murray. For example, its UK sales are processed through a subsidiary in the renowned tax haven of Luxembourg, while its plant and machinery investments are made through Amazon UK Services, which provides warehousing and delivery services for its UK operations.
According to George Turner, director of investigative think-tank TaxWatch, the super-deduction could prove hugely beneficial for Amazon’s UK tax affairs if the company took advantage of it.
“Amazon do have a lot of infrastructure in their delivery network and they’re growing a lot, and during the pandemic they hugely benefited from restrictions that were put in place to deal with a pandemic,” Turner told Computer Weekly.
“They pay very little tax in the UK as it is, although they do pay a little bit of tax, but their tax bill will be entirely wiped out by the super-deduction.”
According to figures pulled up by TaxWatch’s research team, Amazon UK Services made a pre-tax profit of £102m in 2019 and had a corporation tax liability of £6.3m, while the company’s own accounts show it spent £66.8m on plant and machinery, £80.4m on office equipment and £15.3m on compute equipment during the same year.
“If expensed at 130% [as per the terms of the super-deduction], this would entirely wipe out the taxable profits of the company before any deductions for staff pay awards,” said TaxWatch in its Amazon tax cut report, published post-Budget.
Upset in the chamber
The TaxWatch report has since been cited regularly by Labour MPs during Finance Bill-related House of Commons debates over the last couple of months, as they have echoed Turner’s sentiments that it is firms like Amazon that stand to benefit most from the super-deduction policy.
Margaret Hodge has repeatedly spoken in the House of Commons about her misgivings about the super-deduction, while voicing support for amendments that also sought to ban multinationals with a history of corporate tax avoidance from accessing the super-deduction. This amendment was not put to the vote.
“These companies refuse to contribute to the common pot, yet they are about to be gifted – by us, from that very same pot – a hugely generous tax relief [through the super-deduction],” said Hodge during the debate ahead of the vote on 24 May.
“These companies need the public services that taxes buy, from improved connectivity to transport infrastructure, from the education of their workforce to investment in the NHS to keep their workers healthy. However, they persist in deliberately not paying their fair share of corporation tax.
“These companies can undercut and destroy our high streets and community businesses. They exploit the price advantage that they gain from avoiding the corporation tax that they should be paying, yet the government is about to bestow on them the largest bonanza for big business in modern times.”
BT: An out and proud potential beneficiary of the super-deduction
While news of the super-deduction prompted speculation about how various multinational tech firms would reap the benefits back in March 2021, telco giant BT confirmed in a statement to Reuters days after the policy was announced that it intended to make full use of it.
“We are expecting to invest significant amounts of capex [capital expenditure] in plant and machinery over the next several years, and to the extent this proves to be eligible for the super-deduction, it could result in a significant reduction in our corporation tax bill for our 2021/22 and 2022/2023 financial years,” a BT spokesperson told Reuters.
“This would be offset in later years by the subsequent increase in the corporation tax rate to 25% from April 2023.”
As a follow-on to this, it is likely that the tax breaks BT taps into here could be used to fund the continued roll-out of 5G and fibre broadband across the UK, which is something to be celebrated, Neil Ross, head of policy at TechUK, told Computer Weekly.
“The fact that the super-deduction will be able to be used to accelerate investment in 5G and fibre infrastructure is really welcome,” he said. “Incentives to bring this kind of investment forward will mean businesses and consumers will be able to take advantage of higher connection speeds sooner – a needed boost for the whole economy.”
Computer Weekly contacted Hodge, who chairs the Anti-Corruption and Responsible Tax All-Party Parliamentary Group (APPG), for her reaction to Monday’s votes, and she echoed the dismay displayed during previous debates on this topic.
“Huge companies that use artificial corporate structures to shift their profits abroad and avoid paying tax in the UK should not be able to access generous tax reliefs,” she said. “That is why I have campaigned for the biggest multinationals – especially big tech firms like Amazon or Google – to be barred from accessing the government’s overly generous super-deduction capital allowance.
“The government should spend more time backing British SMEs and our much-loved high-street brands instead of dishing out cash to huge multinationals.”
During a Finance Bill debate in the House of Commons on 19 April 2021, Hodge expanded on her misgivings about the policy, particularly with regard to how little time companies without “over-ready capital investment plans” will have to tap into it.
“The tax relief will last for only two years, so it is unlikely to fund the aviation industry or genuinely new capital investment, which takes time to plan and to implement,” she said.
“It will mainly be used to cut taxes for companies that were investing anyway, and those that will benefit most are those that have proposed most during the pandemic. They are the companies with oven-ready capital investment plans, benefiting from the increased demand they have enjoyed over the last torrid year.”
Read more about the super-deduction
- Chancellor announces that companies investing in qualifying new plant and machinery assets will be able to claim a ‘super-deduction’ allowance.
- Chancellor Rishi Sunak announced a slew of tech-related measures in this year’s Budget, which also included a visa review for highly skilled IT professionals and a £375m fund for innovative businesses.
As previously reported by Computer Weekly, Amazon has seen its profit and revenue soar over the course of the pandemic, as stay-at-home instructions across the globe resulted in a surge in demand for online orders and deliveries.
This has resulted in the firm embarking on a series of hiring sprees in the various countries where it operates, including the UK, as well as making investments in building out the underlying infrastructure needed in its delivery and logistics network to accommodate this demand.
During Amazon’s most recent set of financial results, company CFO Brian Olsavsky confirmed that these investments would continue for the foreseeable future.
Computer Weekly contacted Amazon UK Services for comment on this story, and received the following statement from a spokesman in response: “We are proud to be investing heavily and creating good jobs right across the UK. Since 2010, we’ve invested more than £23bn in the UK, creating an estimated £45bn in value-added GDP.
“The UK has now become one of Amazon’s largest global hubs for talent and earlier this month we announced plans to create 10,000 new jobs in the country by the end of 2021, taking our total workforce to over 55,000. This continued investment helped contribute to a total tax contribution of £1.1bn during 2019 – £293m in direct taxes and £854m in indirect taxes.”