The government says that taxing online giants, like Amazon, through a sales tax could be illegal under EU rules.
Under European Union State aid rules it is illegal for EU countries to give financial advantage to some companies and not others in a way which could distort fair competition.
In what appears to be an apparent u-turn, the government now says “tax proposals including new taxes have been judged to constitute State aid in the past” adding “this (an online sales tax) could distort competition.”
Consumers have been abandoning British high streets and are choosing instead to shop from the comfort of their sofas or desks and that shift looks unstoppable with Professor Joshua Bamfield at the Centre for Retail Research predicting that online sales will account for 30% of total retail spend towards the end of the next decade.
The news comes as Altus Group released its annual Commercial Real Estate (CRE) Innovation Report which found 62% of major U.K. property owners and investors say that e-commerce businesses, such as Amazon, are disrupting the commercial retail real estate industry and that this disruption was such that it was having a “profound effect” on their decision-making.
During a tough 2018 the cries from traditional retailers, from the likes of Next to Debenhams, intensified the pressure on the government to “level the playing field” and shift the burden of tax from physical shops to online rivals.
Amazon admits to paying just £63m in business rates in Britain despite recording retail sales of £8bn whilst Debenhams and Next each paid an £80m bill last year on UK revenues of £2.3bn and £4.1bn respectively.
Last summer, the chancellor Philip Hammond signalled the government was listening. He said, “we want to ensure that taxation is fair between businesses doing business the traditional way and those doing business online”
Veteran retailer Sir John Timpson, the government’s own high streets adviser, said to parliament earlier this month, “It is quite clearly the right thing for government to do, to level the playing field between bricks‑and‑mortar retailers and internet retailers. There is far too much of an advantage for internet shopping.”
But, Mel Stride the financial secretary to the treasury delivered a crushing blow in a letter to Nicky Morgan, chair of the influential treasury select committee said, “the Government considers there a high risk that such a tax would be found to be State aid.”
Robert Hayton, who is head of U.K. business rates at Altus Group, warns that time is of the essence to find a solution.
He said, “traditional bricks and mortar retailing is obviously property intensive. Their reliance on property leads to a larger tax to turnover ratio that, if left unchecked, will contribute to the further deterioration of our high streets.
“If an online sales tax for large online retailers would be deemed unlawful, the Government urgently needs to develop a coherent strategy to address the current imbalance.”
Whilst the UK officially exits the European Union on 29th March 2019, under the contentious draft withdrawal agreement, the UK has accepted that it will have to stay in a “dynamic alignment” with the EU on State aid rules.