All eyes on OECD as UK confirms Digital Services Tax
The OECD will be under pressure to reach international consensus on taxing the digital economy as the UK confirms unilateral Digital Services Tax (DST), according to international tax experts at KPMG in the UK.
The comments come after the Budget made clear that the DST will go ahead with effect from 1 April 2020.
The tax will be enacted in line with the draft legislation previously published, which means that it will apply at a rate of 2% to the gross revenues of internet search engines, online marketplaces, and social media websites.
The Government anticipates raising £2 billion from the new tax over the next few years and is committed to its repeal once a multilateral agreement is reached at the international level on digital taxation.
Matthew Herrington, International Tax Partner at KPMG in the UK, said: “For businesses potentially affected by DST, the focus is now on how quickly the OECD can reach a consensus position on its ongoing work on the re-allocation of taxing rights under its ‘Pillar One’ project.
“The Budget also made it clear that the Government will continue to give consideration to how the legislation applies to marketplace delivery fees, with a view to ensuring that the new tax applies in accordance with its underlying policy rationale.”
The implementation of the UK DST will add to the list of increasing unilateral initiatives being seen globally that seek to tax the value that tax administrations believe is created by so-called ‘digital’ companies.
Herrington continued: “The decision to forge ahead with the introduction of the new tax is not unexpected. But, it remains to be seen whether or not the tax could form part of a wider discussion with the US on a post-Brexit UK-US trade deal.
“The US has been clear in its Section 301 investigation into the equivalent French DST that it will consider the imposition of tariffs on taxes that it considers unfairly discriminate against US companies, so it is possible that they would view the UK DST as such a tax.
“Fundamentally, there is a critically important interplay with the ongoing Pillar 1 and Pillar 2 work of the OECD on taxing the digitalisation of the economy. Only where a multilateral solution is reached at OECD level will we see unilateral measures like the UK DST being repealed.”
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