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Online sales tax ‘illegal’ under EU law

The government has said that an “Amazon tax” on online sales could be illegal under European Union state aid rules.

In a letter to Nicky Morgan, chair of the Treasury Select Committee, Mel Stride, financial secretary to the Treasury, said: “The government considers there is a high risk that such a tax would be found to be state aid.”

The tax, which chancellor Philip Hammond said he was seriously considering last August, was proposed to level the playing field between bricks-and-mortar stores and ecommerce businesses in a bid to save the high street.

However, EU state aid regulations prohibit member states from giving financial advantage to some companies, and not others, in a way that could distort competition.

Earlier this month, Sir John Timpson, high streets adviser to the government, gave his support to the tax.

He told parliament: “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.”

Amazon pays £63m in business rates in Britain while making £8bn in sales. This compares with Debenhams and Next, which each pay £80m in business rates on revenues of £2.3bn and £4.1bn respectively.

Commenting on the news, 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.”

Although the UK is due to leave the EU at the end of March, the draft withdrawal agreement, which was rejected by MPs, states that the UK has accepted it will have to stay in “dynamic alignment” on state aid rules.

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