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U.K. Retailers Seek Tax Change to Account for Shift to Internet

U.K. retailers are pushing for changes to the tax system so that high street stores aren’t at a disadvantage to online sellers.

“We’ve got a 19th-century tax base whereby space and people get taxed and digital activity doesn’t,” British Retail Consortium Chairman Ian Cheshire said in a March 1 briefing in London. “All companies in the U.K. retail sector are going to become increasingly multi-channel, so the danger for the Treasury is their tax base will start to shrink.” Inc. and Google Inc. were among companies singled out by U.K. lawmakers last year for not paying enough tax in Britain. With online retailing now reaching 11 percent of sales in Britain, reorganizing the tax system is becoming a “strategic issue for U.K. Plc,” said Cheshire, who pointed to the collapse this year of HMV Group Plc, the U.K.’s biggest seller of CDs and DVDs, and camera retailer Jessops Plc.

“One of the reasons we’re seeing the level of vacancies in shops now is that this has begun to hit critical mass,” said Cheshire, who is also chief executive officer of Kingfisher Plc, Europe’s largest home-improvement retailer. “So how do we redesign the model that isn’t reliant on taxing space? We should be paying tax but it needs to be a level playing field.”

Cheshire said he discussed business rates charged to shops on the basis of their area with Chief Secretary to the Treasury Danny Alexander, Chancellor of the Exchequer George Osborne’s No. 2, on Feb. 25. The rates are more than corporation tax for B&Q, a Kingfisher brand, he said.

Unintended Consequences

Alexander “really took it on board,” Cheshire said. “We’re going to try and develop some thinking about how do you take a future model and prescribe the way of taxing economic activity, and avoid unintended consequences like creating high street closures.”

Members of Parliament’s Public Accounts Committee last year criticized Amazon, Google and Starbucks Corp. for using complex accounting methods to reduce their U.K. tax liabilities.

Cheshire said if he were setting up a business now, it would be designed along the lines of Screwfix, a Kingfisher brand that’s geared toward online sales, rather then B&Q, which “could probably do without the square footage.”

B&Q, which has annual profits of about 200 million pounds ($300 million), pays business rates for its stores totaling about 120 million pounds, he said. Selling a power tool through the B&Q website has a “minute” tax burden compared with selling the same product in a store, he said.

“The challenge for government is they have to raise tax from somewhere,” said Cheshire. “If they’re not careful they’ll find a whole pile of new activity which isn’t generating the tax take for the government.”

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