Amazon to escape two per cent digital services tax, HMRC admits

The American firm will not have to pay the digital tax on goods it sells directly to customers

Online retail giant Amazon will not by impacted by the UK's two per cent digital services tax (DST), but small traders who use Amazon's online marketplace to sell their products will have to pay the increased charges.

That's according to a report by The Times, which states that Amazon will not have to pay the two per cent tax on goods it sells directly to customers. Instead, it will be required to pay the tax only on revenues that it receives from third-party sellers using use its marketplace platform.

According to The Times, the HMRC decided not to levy the new tax on sales as that could have adversely affected traditional online retailers such as John Lewis and Tesco.

This, in effect, means Amazon will escape paying the increased charges as the company has already announced that it will pass on the cost in higher fees to British sellers.

Business groups are now accusing HMRC of designing a tax that failed to ensure that Amazon pays its fair share of taxes in the UK.

"This seems to me to be absolutely outrageous," Conservative peer Lord Leigh of Hurley, told the Lords in a meeting this week.

Lord Leigh accused the government of allowing the US retail company to avoid tax on its own sales through the marketplace.

Prime Minister Boris Johnson had insisted last year that American tech firms must pay a 'fair' amount of tax on their UK revenues.

In April, the government introduced the two per cent DST, after slow progress on a global agreement over how to handle taxing big technology companies, many of which are American.

At the time of announcement, the government said that it would levy the tax against firms whose annual global revenues from digital services exceed £500 million. Of that figure, more than £25 million must be from the users based in the UK.

"The Digital Services Tax will apply to a group's businesses that provide a social media service, search engine or an online marketplace to UK users," the government's policy paper on DST states.

While announcing the DST, the Treasury said that it will raise an extra £400m by 2021, and £500m per year in due course.

In August, Amazon said that it would charge increased fees from sellers in the UK as well as in other European countries where it has been hit with additional taxes.

Google also announced last month that it was increasing advertising prices, effective from 1^st November, for British customers to cover the costs of the DST.

In August, HM Treasury said that it was not planning to drop the DST on tech firms due to fears that it could hurt a trade deal with the US.

A spokesman for Amazon said: "Like many others, we have encouraged the government to pursue a global agreement on the taxation of the digital economy at OECD level rather than unilateral taxes, so that rules would be consistent across countries and clearer and fairer for businesses."

In 2019, Amazon paid the government £293m in taxes on total UK revenues of £13.73bn.