Partner Article

The fight between online and offline retailers intensifies

On Friday 17th August 2013, the government ruled out the possibility of a new tax on online retailers as called for by industry leaders; including Sainsbury’s and Morrisons chief executives, Justin King and Dalton Philips.

A number of retailers lobbied for a tax to ‘level the playing field’, arguing it is necessary to offset the business rates tax burden on retailers with bricks and mortar shops. Online retailers are not required to pay rates if they don’t trade from physical outlets, and many traditional retailers argue that this places them at a severe disadvantage.

Retail law specialist, and Ratio partner Joanna Norris, considers whether online retailers really do have an unfair advantage, and if so, whether the government should be taking steps to even things out.

My first thought, when I saw that some well-known retail names were calling for a tax on online retailers was, ‘am I missing something’?

Many of the UK’s long-standing mid-market and leading retailers sell products both on- and offline. Even Morrisons has now joined the on-line party with its recent tie-in with Ocado. Multi-channellers apart, some retailers are still split distinctly between those that trade on-line and those that trade via shops. To my mind, they are two different beasts, and accordingly there’s no reason why they shouldn’t be subject to different taxes and rules.

My views aside, business rates are levied on commercial properties, such as shops, and are used to help to pay for local services. In theory this means that online retailers without shops aren’t required to pay. However, it’s worth noting that rates are payable on warehouses, and this means online retailers may be caught if they lease or own distributions centres.

As a retail specialist, I understand the argument that online retailers may have a certain advantage over traditional retailers in this respect, but then isn’t that the nature of the free market? Even if they are selling the same or similar products, albeit through different channels, isn’t it the individual retailers’ responsibility to work out how to become more profitable in order to offset the business rates, or taxes, or property rent, that they are required to pay?

I appreciate that jobs may be lost when shops close their doors, and that some of our town- and city-centres are verging on ghost-town territory, but again, I don’t necessarily think that a ‘made-up’ tax on online retailers will help to reverse this decline. Neither do I think that it is a necessarily good idea for the government to artificially seek to ‘make things easier’ for a certain segment of the retail market, without considering all possible options.

In addition, it should also be noted that many online retailers are small, independent businesses – exactly the type of entrepreneurial enterprise that the government should be supporting. The last thing we should be doing as we start to leave the recession behind is dragging these micro-businesses down with onerous tax and additional administrative burdens.

So, how to move the debate forward? It has been suggested many times before; but how about the government reviews the business rates scheme? This could greatly help to ease pressure on shop-based retailers, and shouldn’t adversely affect their on-line cousins.

In addition, perhaps it’s also time to reconsider the use of long leases in the retail world. One of the reasons some retailers choose to trade purely on-line is that they are (understandably) frightened of tying their fledgling businesses into long and onerous leases. With a little effort and impetus there should be no reason why new retailers can’t set up shop in pop-up spaces, on market stalls or in empty premises.

Interestingly the government, in rejecting calls for taxing online retailers, has indicated that its focus now will be on agreeing international standards and procedures for the taxing of multinational businesses, with common principles to be applied regardless of whether these trade on-line, off-line or a combination of the two.

That sounds like a much more sensible solution to me.

This was posted in Bdaily's Members' News section by Ratio Law LLP .