Out-Law / Your Daily Need-To-Know

Digital tax: UK to press ahead as OECD work continues

Out-Law News | 23 Jan 2020 | 3:20 pm | 2 min. read

The UK intends to follow through with plans to introduce its own tax on international technology companies in April ahead of promised international action later this year.

Speaking at the World Economic Forum (WEF) in Davos, Angel Gurría, secretary-general of the global Organisation for Economic Cooperation and Development (OECD), said that an international solution to the problems associated with taxing the digital economy was "on track" to be finalised in the second half of 2020.

France, which last year approved a 3% tax on revenues deemed to have been generated in France by digital companies wherever they are established, this week announced it would postpone collection of its tax in support of the OECD's efforts. The OECD has urged the UK to follow suit, while US treasury secretary Steve Mnuchin warned in his own speech to the WEF that any "discriminatory" additional taxes on US-based technology companies will be met with reciprocal trade tariffs.

However, UK chancellor Sajid Javid has continued to back the UK's plans in interviews this week. The UK's planned 2% digital services tax (DST) is intended as an interim measure, which will be repealed once a global solution is in place.

Affected businesses face a compliance nightmare and a high chance of incurring double taxation if each country imposes its own tax on something slightly different.

UK prime minister Boris Johnson and US president Donald Trump are expected to discuss the UK DST as well as options for a post-Brexit trade agreement between the UK and the US when they meet in Davos later this week.

Tax expert Catherine Robins of Pinsent Masons, the law firm behind Out-Law, said: "It will be disappointing if the UK insists on going ahead this year with its digital services tax".

"Affected businesses face a compliance nightmare and a high chance of incurring double taxation if each country imposes its own tax on something slightly different," she said. "With the OECD intending to come up with an agreed approach by the end of this year, it seems short-sighted for countries not to hold fire, at least for this year, to see what emerges from the OECD process."

The UK's planned DST will be charged at 2% on the UK-derived revenue of social media platforms, search engines and online marketplaces. It will be payable by businesses whose global revenue from in-scope business activities is greater than £500 million and where more than £25m of that revenue is derived from UK users.

The OECD began consulting on its proposals for reform of the international tax system in order to capture revenue from the digital economy last year.

Speaking in Davos, Gurría said the OECD's plans had the support of 137 countries.

"This is not about specific digital companies, this is an issue for finance ministers finding their income going down," he said. "We need to establish new rules to avoid hundreds of billions of dollars not being paid in tax."

"Are we on track? Yes. We have been working on this digital tax plan for 2-3 years. In the second half of 2020 we will go for implementation ... We believe it is possible to deliver this deal and gain the consensus we need," he said.

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