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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