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PARLIAMENTARY DEBATES HOUSE OF COMMONS OFFICIAL REPORT GENERAL COMMITTEES Public Bill Committee FINANCE BILL Fifth Sitting Thursday 11 June 2020 (Morning) CONTENTS CLAUSES 38 TO 50 agreed to. Adjourned till this day at Two o’clock. PBC (Bill 114) 2019 - 2021 No proofs can be supplied. Corrections that Members suggest for the final version of the report should be clearly marked in a copy of the report—not telephoned—and must be received in the Editor’s Room, House of Commons, not later than Monday 15 June 2020 © Parliamentary Copyright House of Commons 2020 This publication may be reproduced under the terms of the Open Parliament licence, which is published at www.parliament.uk/site-information/copyright/. 123 Public Bill Committee 11 JUNE 2020 Finance Bill 124 The Committee consisted of the following Members: Chairs: SIOBHAIN MCDONAGH,†ANDREW ROSINDELL † Badenoch, Kemi (Exchequer Secretary to the † Phillipson, Bridget (Houghton and Sunderland Treasury) South) (Lab) † Baldwin, Harriett (West Worcestershire) (Con) † Ribeiro-Addy, Bell (Streatham) (Lab) † Browne, Anthony (South Cambridgeshire) (Con) † Rutley, David (Lord Commissioner of Her Majesty’s † Buchan, Felicity (Kensington) (Con) Treasury) † Cates, Miriam (Penistone and Stocksbridge) (Con) † Smith, Jeff (Manchester, Withington) (Lab) † Flynn, Stephen (Aberdeen South) (SNP) † Streeting, Wes (Ilford North) (Lab) † Jones, Andrew (Harrogate and Knaresborough) Thewliss, Alison (Glasgow Central) (SNP) (Con) † Williams, Craig (Montgomeryshire) (Con) † Millar, Robin (Aberconwy) (Con) Chris Stanton, Kenneth Fox, Johanna Sallberg † Norman, Jesse (Financial Secretary to the Treasury) Committee Clerks † Oppong-Asare, Abena (Erith and Thamesmead) (Lab) † attended the Committee 125 Public Bill Committee HOUSE OF COMMONS Finance Bill 126 also levies a DST. As this is a new tax, there are also Public Bill Committee extensive provisions to ensure the framework of the tax works as intended. These draw on many existing tax Thursday 11 June 2020 concepts to reduce the burden of implementing the new tax for what we hope will be a limited time. (Morning) The digital services tax was announced at Budget 2018 as a response to changes brought about by the rapid development of our digital economy.That economy [ANDREW ROSINDELL in the Chair] brings many benefits, but it has posed a significant challenge for international corporate tax rules. Under Finance Bill current rules, digital businesses can derive significant value from UK users, but in many cases they pay little 11.30 am UK tax because international corporate tax rules do not recognise the user-generated value when allocating The Chair: I remind Members to please respect social the right to tax profits between jurisdictions,so undermining distancing guidance. As you are aware, tea and coffee the fairness and sustainability of our tax system. It is are not permitted in Committee rooms. Please ensure therefore now widely accepted that the rules require mobile phones are turned off or switched to silent updating. during the sitting. As I have said before, the Hansard The Government remain at the forefront of international reporters will be grateful if Members email their speaking efforts to secure a comprehensive long-term solution to notes to [email protected]. the issue, and we are fully engaged in discussions with OECD and G20 partners. Although we welcome recent Clause 38 progress towards a global solution, there remain important and difficult issues to resolve, so the Government are acting now to address those widely held concerns in a DIGITAL SERVICES TAX: INTRODUCTION fair and proportionate manner. DST is a temporary Question proposed, That the clause stand part of the measure, until appropriate global reform is in place. Bill. As a temporary measure, DST is targeted at those business models that rely most significantly on user- The Chair: With this it will be convenient to discuss generated value and that place the greatest strain on clauses 39 to 44 stand part. current corporate tax rules. It is the Government’s judgement that these services are search engines, social The Financial Secretary to the Treasury (Jesse Norman): media platforms and online marketplaces. Of course I Thank you, Mr Rosindell. I am grateful to all members recognise that a broad range of digital services could be of the Committee for joining us this morning; I am also said to derive value from their users, and I am aware grateful it is not too hot outside. It is a rare moment in that some hon. Members have called for the scope of Parliament when one gets to introduce a new tax—the DST to be extended to include services such as media digital services tax—on to the statute book. With the streaming. However, the services in scope of this tax are clauses grouped together, it is appropriate to spend those that rely most significantly on user participation some time in my opening remarks outlining the overall in the creation of value: for example, while media architecture of the tax and how it is designed to work; streaming platforms may utilise user contributions in then we can pick up specific details in the clauses as we the form of reviews or recommendations, users of a come to them. social media platform often create the content that is Clauses 38 to 44 introduce legislation to enact the shared across the platform, and users of an online digital services tax, and they set the scope of this marketplace provide the market liquidity required for legislation. DST will levy a 2% charge on the revenues the marketplace to function. Also, while we are engaged that groups receive from providing specific digital services in OECD discussions about finding a long-term global to UK users. The specific services in scope of the charge solution and exploring the case for broader reform, we are search engines, social media, and online marketplaces. judge that it would not be appropriate to implement a I will explain later why those three services are in scope temporary tax on a broader basis. of the new tax. DST will apply only to groups with DST follows the recommendations of the OECD’s annual global revenues from services of more than 2018 interim report. Targeting DST at those services £500 million. It will then be charged on the revenues that derive the greatest value from their users minimises only where they are attributable to UK users, and only the distortive consequences of a tax on revenues and on amounts above £25 million. minimises the risks of introducing a temporary measure An exemption will exclude online financial services before global reform is agreed. That will ensure that marketplaces from the definition of an online marketplace. DST is proportionate, while still raising up to £2 billion Businesses making low profit margins on their in-scope over the next five years. That in addition to the UK activity will be able to pay the tax at a reduced rate, taxes that digital businesses already pay and, as I have while loss makers will pay nothing; that will minimise said, reflects the value they derive from UK users. the distortions that a tax on revenues can create. To I will now summarise the clauses that form this part further reduce those distortions, a relief for certain of the Bill—clauses 39 to 44. Clause 39 sets out that cross-border transactions is also included. It will reduce DST will apply to all revenues that arise in connection by half the revenues subject to DST where those revenues with in-scope digital service activity. That is deliberately are derived from an online marketplace transaction a very broad test; it ensures that however these businesses between a UK user and a user from a jurisdiction that make money from their in-scope activity, that revenue 127 Public Bill Committee 11 JUNE 2020 Finance Bill 128 will be subject to the tax. The clause also sets out that development of our modern economy. Ultimately, as I revenues should be apportioned on a just and reasonable have said, our strong preference is for a global solution, basis when they are not wholly in connection with an which will be the most comprehensive and enduring in-scope activity. way to address concerns about the current corporate Once a group’s digital services revenues have been tax rules. Until such a solution is in place, however, established, the next step is to determine how much of DST will ensure that digital businesses pay UK tax that those revenues is attributable to UK users. Clauses 40 reflects the value they derive from UK users. I therefore and 41 set out the five cases where revenues are attributable commend the clauses to the Committee. to UK users. The first three cases deal with the specific types of revenue that online marketplaces may receive. Bridget Phillipson (Houghton and Sunderland South) The first case concerns the revenues that a marketplace (Lab): It a pleasure to see you in the Chair, Mr Rosindell. earns from facilitating transactions between users; this Like the Minister, I will use this opportunity to lay out will include a marketplace’s commission, for example. our broad views and concerns about the operation of These revenues are attributable to UK users whenever a the digital services tax. We will pick up some of the UK user is a party to the transaction. It does not matter technical issues with the clauses as they emerge later. whether the UK user is the buyer or the seller, or which user paid the revenue; where there is a cross-border We welcome the principle behind the introduction of transaction between a UK user and a non-UK user, all a digital services tax. It is regrettable, if not unsurprising, of the marketplace’s revenue from that transaction is that it has taken the Government so long to get to such regarded as attributable to UK users, although this may a measure, given the wider inertia when it comes to be subject to cross-border relief.