Following the Chancellor’s promise this month to ensure giant technology companies pay a fairer portion of tax, Chris Denning, tax partner at MHA MacIntyre Hudson, argues low tax rates for multinationals are a key fiscal tool to encourage investment into the UK. We’ll have to see how this pans out in the autumn budget next week.

Philip Hammond may have impressed the Tory conference by threatening to “go it alone” with a digital sales tax but in practice there will be a strong reluctance to take unilateral action as it could damage the UK’s economic and fiscal competitiveness. HM Treasury clearly stated in its updated position paper of March 2018 that the preferred solution for the UK needs to sit within the international corporate tax framework.

The constant negative focus on the level of corporation tax multinationals pay in the UK fails to account for the fact that the UK’s low rate is a hook for multinationals to locate here, and means they employ thousands of people as a result. The full benefits to the UK economy don’t show up in corporation tax statistics, and people must remember they don’t reflect the full story.

Amazon’s 2017 results for example prompted much furore, but indicated that the company paid more tax to the UK exchequer than in the previous year. Headcount went up significantly, resulting in a significant increase in pay-as-you-earn tax (PAYE) and national insurance contributions (NIC).While companies have a “moral obligation” to pay the right amount of tax they are also still obliged to create shareholder value which directly benefits thousands of individuals whose pension funds will be heavily invested in these stocks.

The Chancellor also needs to consider what defines the “digital economy” as opposed to the “digitalisation of the economy”, which impacts every business. The UK Government sees business models that profit from user participation, such as social networks, search engines and intermediation platforms as the targets for reform and not online content providers, e-tailers or software/cloud service providers. This is on the basis that remote selling cross border is not unique to “digital businesses”. This is a significant departure from the EU’s proposed Directive where remote content sellers and service providers are targeted. Going it alone is only likely to muddy the waters further.