UK Announces 2% Digital Services Tax From 2020

UK Announces 2% Digital Service Tax From 2020

UK would introduce a two percent digital services tax (DST) to ensure digital businesses pay tax that reflects the value they derive from UK users, UK Chancellor Philip Hammond announced in his October 29 Budget Speech.

“A new global agreement is the best long-term solution. But progress is painfully slow. We cannot simply talk forever. So we will now introduce a UK Digital Services Tax,” Hammond said in his speech.

The UK DST would apply to companies generating over GBP500m in annual global revenues. The two percent DST would apply to search engines, social media platforms, and online marketplaces.

The DST is expected to raise over GBP400m a year.

Hammond said in his speech: “Digital platforms delivering search engines, social media, and online marketplaces have changed our lives, our society, and our economy, mostly for the better. But they also pose a real challenge for the sustainability and fairness of our tax system.”

“The rules have simply not kept pace with changing business models. And it’s clearly not sustainable, or fair, that digital platform businesses can generate substantial value in the UK without paying tax here in respect of that business,” the Chancellor added.

Hammond said that the DST would be a narrowly-targeted tax on the UK-generated revenues of specific digital platform business models.

“It is important that I emphasize that this is not an online-sales tax on goods ordered over the internet. Such a tax would fall on consumers of those goods – and that is not our intention,” he said.

Hammond said that the DST would be legislated for in the 2019/2020 Finance Bill, and apply from April 2020.

Reacting to the announcement, Dan Neidle, tax partner at Clifford Chance LLP, tweeted: “For 100 years, businesses have been taxed based on where they are, not where their customers are. The digital tax represents a revolutionary change – it taxes digital companies, regardless of their legal structure, if they have users in the UK.”

“There are many – particularly in the US – who will regard limiting that revolution to one particular sector as opportunistic, particularly when it’s a sector where the UK (and Europe as a whole) have conspicuously failed to create world-beating businesses.”

According to the Chancellor, the Government would continue to work at the OECD and the G-20 level to seek a globally agreed solution. The Government would dis-apply the DST when an appropriate international solution is in place, he noted.

The Government would launch a consultation on the design of the DST in the coming weeks to explore the key questions and challenges concerning the application of the DST and ensure it operates as intended.