Speaking at the Federation for Small Businesses (FSB) policy conference, Antonio Falco, an FSB member, told Osborne his company pays “way more” taxes than Facebook does and urged the chancellor to apply the same rules to everyone regarding corporate tax.
Falco also challenged Osborne about the recent deal with Google, where the government ordered the internet giant to pay £130m back in tax covering a 10 year period.
“Business is tough, and I don’t mind being in a tough game. All I want is the same rules,” Falco said.
Osborne responded by saying, “Tax laws used to tax multinational corporations were devised in the 1920s and they didn't keep pace with not just the growth of the global economy and all the trade that has happened since then, but also the growth of the internet.
“We have been trying to reach an international agreement to change this,” he said, welcoming the recent deal among 31 OECD countries, including the UK, for the automatic exchange of reports across nations.
The chancellor said he has heard proposals about replacing corporate tax and raising a turnover tax. However, he warned that could mean a business that has made no money in a particular year, or a company that has lost a big order, would still be hit with a tax bill.
"So I think before we rush to some other solution I would try and make corporation tax work, which is a tax on profits.
"And in particular - and this is where all the anger has come - make sure we are taxing the genuine economic activity that happens in this country,” he said.
"In the end, for me, the real solution to the problem is this: many of the companies you are talking about and have been in the press are American companies. We need more of these British companies, we need British companies growing and succeeding on the internet."
Defending the introduction of the new tax returns system, Osborne said, “It would be completely bizarre if you would live in a world where you could do things on the internet and use your computer in your daily lives and our tax authorities remained stuck in the 19th century.”
He also said the government is trying to abolish annual tax returns in a bid to make it easier for businesses to comply with their tax requirements and avoid the “big burden” of filling an annual tax return.
Osborne said he will work together with small businesses to make get it right and have exceptions to those who can’t get on with a computer or smartphone.
The chancellor also addressed the introduction of apprenticeship levy. He said the levy will pay for 3 million apprentices that small businesses will be able to make use of.
Following the European Union president Donald Tusk’s proposed deal published just minutes before his speech, Osborne promised businesses, “You will see real progress, changing European Union and reforming our relationship with the European union”.
“We are going to have a referendum in this country and I want to make sure you have your voices heard, because you will be in the hard end of the economic consequences of the decision the country takes and face the potential uncertainty that may follow,” he told small businesses.
“I want to make sure the small business community take part in this discussion because it is part of our country’s future and you are central to our country’s future”.
During his speech, the chancellor mentioned once again the “dangerous cocktail” of risks the UK economy is facing.
“There is a lot of turbulence and the question for us is how do we best deal with that? I would argue that we need to steer a clear course: reject the short-term populism solutions and make sure we are fixing the fundamentals in Britain that allow you to survive and thrive as a business.”
Osborne said the OBR considered this to be the most sustained reduction in government consumption in over 100 years.
Moreover, the keynote speaker said the biggest ongoing problem in our society is productivity, as the UK is currently not able to produce enough per worker hours other countries do.