Online retail tax could be unlawful under EU rules, Treasury warns

The government has said 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. The government said “tax proposals including new taxes have been judged to constitute state aid in the past” adding “this (an online sales tax) could distort competition”.

Mel Stride, financial secretary to the Treasury, wrote a letter to Nicky Morgan the chair of the Treasury Select Committee on 8 January which said: “The government considers there a high risk that such a tax would be found to be state aid.” She added that tax proposals had been considered state aid in the past and said it could distort competition and potentially affect intra-EU trade if non-UK business residents were less likely to have a “substantial” store presence in the UK.

The news comes as real estate firm Altus Group released its annual Commercial Real Estate (CRE) Innovation Report which found 62% of major UK property owners and investors said e-commerce businesses were disrupting the commercial retail real estate industry and had a “profound effect” on decision making.

Retailers from the likes of Next to Debenhams have urged the government to “level the playing field” and shift the burden of tax from physical shops to online rivals. Last summer in the autumn Budget, chancellor Philip Hammond said: “We want to ensure that taxation is fair between businesses doing business the traditional way and those doing business online,” signalling the introduction of an online sales tax.

Amazon has admitted to paying £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.

Robert Hayton, head of UK business rates at Altus Group, 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.”