What does fair business taxation look like in a digital world? Chair: Ray McCann President, CIOT #ciotifsdebates #CPC18

What does fair business taxation look like in a digital world What does fair business taxation look like in a digital world? Conservative Party Conference fringe event 2018 Paul Johnson @PJTheEconomist What does fair business taxation look like in a digital world? © Institute for Fiscal Studies

What does ‘fair’ mean when applied to business? Concepts of ‘fair share’ apply more naturally to people 87% of tax is handed to government by business, but all taxes are ultimately paid by people Corporate tax comes from the incomes of shareholders, workers &/or consumers Taxing large companies is not synonymous with taxing rich people How else to judge a corporate tax system ? Does tax give some firms a competitive advantage? Are digital companies being advantaged by lower tax rates? How does corporate tax distort where firms choose to locate profits and real activities? What does fair business taxation look like in a digital world? © Institute for Fiscal Studies

Corporate tax is quite simple ... Allocation based on users is really hard Allocation of corporate tax receipts is hard Corporate tax is quite simple ... Parent company Production subsidiary Intellectual property Customers What does fair business taxation look like in a digital world? © Institute for Fiscal Studies

Where do we go from here? Everyone agrees the current system has problems No single ‘right’ answer to the question of where value was created; harder with digital Firms have incentives to shift profits & activities (can create real distortions) & governments have incentives to compete But fairness doesn’t offer a criteria that helps allocate corporate tax Taxes based on residence of HQ, location of subsidiaries, where value is created, location of consumers could all be argued to be fair A practical way forward is to try to reduce distortions (including to competition) Keep adding patches (to general system & specifically for digital) But don’t expect that to lead to a surge in UK tax revenues or fix all competition issues Or move to a system that has fewer problems Destination based corporate tax has merits: consumers are less mobile than businesses, investments or profits; removes incentives for firms shift activities and for governments to compete What does fair business taxation look like in a digital world? © Institute for Fiscal Studies

What does fair business taxation look like in a digital world? Claire Hooper, EY Tax Partner, Chair of CIOT Corporate Taxes Committee What does fair business taxation look like in a digital world? Corporation tax is levied based on where businesses create value, but what does that mean in today’s world? Are the government right to be considering a revenue-based tax for digital companies? Is an international solution likely? Join us to discuss these and wider issues around business taxation.   Rt Hon Mel Stride MP, Financial Secretary to the Treasury Robert Courts MP, Chair of the All Party Parliamentary Group for small and micro business Claire Hooper, Tax Partner, EY, and Chair of CIOT Corporate Taxes Committee Paul Johnson, Director, Institute for Fiscal Studies Chair: Ray McCann, President, Chartered Institute of Taxation In a speech in Westminster Hall on March 27 Robert spoke about the role of Government being to help to level the playing field, to make sure that small businesses are able to compete with the large multinational companies on the internet. I anticipate he will say something similar at our event. Given we have four speakers is it realistic to ask speakers to try to keep their opening remarks to no longer than eight minutes?

Fair tax? Clear rules with certainty of treatment Everything that should be taxed is taxed but no double taxation Same treatment for taxpayers in the same situation Concern that global digital businesses have advantages over Traditional businesses Domestic business In addition to fairness, also need consider if the tax is efficient, effective, sustainable and collectible  

Cause of the perceived problem ? Tax avoidance? Centralisation → long term sustainability of tax base? Issue with interaction with other taxes? Public perception? User-created value not recognised in current rules? Changes required to treatment of intangibles? Result? Lack of consensus on problem   Source: Autumn Budget 2017

Some of the key options being considered Tax based on user created value Revenue based tax Digital PE and change profit allocation Changes to taxation of customer intangibles Minimum tax Is this a fairer approach to tax ?

Next steps OECD Inclusive Framework Group European Union More work to be done on nexus and profit allocation Final report in 2020 / progress update in 2019 European Union Hoping to reach agreement by the end of the year Possibility of sunset clause Meanwhile more unilateral action likely More unfairness at least in the short term ?

What does fair business taxation look like in a digital world? Robert Courts MP Chair, APPG for Small and Micro Business #ciotifsdebates #CPC18

What does fair business taxation look like in a digital world? Rt Hon Mel Stride MP Financial Secretary to the Treasury #ciotifsdebates #CPC18

What does fair business taxation look like in a digital world? Ray McCann Chartered Institute of Taxation (Chair) @Ray_McCann55 Rt Hon Mel Stride MP Financial Secretary to the Treasury @MelJStride Robert Courts MP APPG for Small and Micro Business @RobertCourts Claire Hooper EY & CIOT Paul Johnson Institute for Fiscal Studies @PJTheEconomist #ciotifsdebates #CPC18