OECD progress makes case for keeping UK Digital Services Tax on ice

The UK government should put its planned Digital Services Tax on hold for at least a year, following signs of progress in reaching international agreement on taxation of digital giants and other multinational corporations, says the Chartered Institute of Taxation (CIOT).

This follows yesterday’s proposal – welcomed by CIOT – from the OECD Secretariat, which would re-allocate some profits and corresponding taxing rights to countries and jurisdictions where multinationals have their markets.

CIOT President Glyn Fullelove said:

“These are secretariat proposals, not yet a consensus view of OECD members. However, they do indicate progress is being made, and do seem to form a basis around which consensus could be reached. It would therefore be constructive for the UK to indicate a delay to at least 2021 for the Digital Services Tax, to allow work to progress and avoid having to take ‘reimbursement’ measures as are proposed in France.”

Draft legislation for the UK Digital Services Tax (DST) was published in July for consultation with a view to legislation being enacted in the next Finance Bill. It would introduce a new 2% tax on the revenues of search engines, social media platforms and online marketplaces which derive value from UK users, taking effect in April 2020. It does not seek to tax digital sales more generally.

The French digital tax came into effect earlier this year, backdated to the start of 2019. Following talks with the US government France pledged to reimburse affected companies any excess taxes once an international deal is in place. That is, any amount of tax paid under the French digital tax which would not have been paid under whatever international framework is agreed through the OECD would be refunded to the company in question.

Glyn Fullelove continued:

“We have always said that national digital taxes should only ever be temporary stopgaps ahead of the forging of an international consensus on how the digital economy – and multinational companies in general – should be taxed.

“Proposals for such taxes may have a role in focusing minds on reaching international agreement. For this reason the UK government will probably want to continue with its plans to legislate for the DST in the next Finance Bill, so it is ready to go at a later start date if needed.

“However so long as progress is being made on an international solution, in our view it makes sense to keep the DST on ice for at least a year, and for other governments with such taxes in the pipeline to similarly put them on hold.

"Uncoordinated unilateral measures like these inevitably lead to less alignment of tax bases globally, resulting in double taxation and a significant compliance burden for businesses, not to mention the risk of retaliatory action. Is it really worth going through all of this for what might be just a year of revenue, which might have to be part-refunded in the end?

“There is real concern that the DST will stifle economic growth and innovation, particularly among the smaller companies affected. It could deter some companies from entering the UK market, at a time when Brexit may already be dampening investment in the UK. The OECD Secretary-General warned yesterday that unilateral action would have ‘negative consequences on an already fragile global economy’. We should listen to him.”


Notes for editors


The Chartered Institute of Taxation

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

Contact: Hamant Verma, External Relations Officer, 0207 340 2702 HVerma@ciot.org.uk

Out of hours contact: George Crozier, 07740 477 374)