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Autumn Budget 2018: Government confirms introduction of UK Digital Services Tax
Govt confirms introduction of UK Digital Services Tax
The Chancellor has announced the introduction of a new Digital Services Tax in the UK from April 2020.
The Chancellor has announced the introduction of a UK digital services tax, with effect from April 2020. The tax will be levied on ‘tech giants’ with global revenues of at least £500 million, and is modelled in part on the European proposals that have been circulating since March.
The details will be subject to a consultation, which will be launched in the next few weeks. However, it appears clear that the new tax will be:
- Levied at a fixed percentage of two percent on revenues;
- Applicable only to specific digital businesses that perform intermediation activities (search engines, social media platforms and online marketplaces);
- Deductible as an allowable expense for UK corporation tax purposes (but not creditable); and
- Regarded by HMRC as falling outside the scope of the UK’s double tax treaties.
The Chancellor expects the tax to raise £400 million annually, and it will be subject to various safeguards, including a £25 million de minimis, an exemption for loss-making entities, and a reduced rate for low margin businesses.
Importantly, the tax will not automatically apply to online sales of goods – rather, it will only apply to revenues earned from intermediating such sales. The same general position is expected to apply in relation to supplies of online content, and specific exemptions will also apply to financial and payment services, sales of software/hardware, and to television/broadcasting services. The consultation process will also be used to explore the possibility of legislating further exemptions.
The tax will be repealed once agreement is reached on a coordinated solution at the international level, and will be subject to a formal review in 2025 (to the extent that international agreement has not been reached by then).
