UK: Digital services tax
The UK government will proceed with its proposed 2 percent digital services tax (DST). The new legislation is effective 1 April 2020.
According to the UK government website, the new tax will apply to "the revenues of search engines, social media platforms and online marketplaces which derive value from UK users."
Initially, the tax will apply only to multinational groups with worldwide revenues from digital activities of more than 500 million pounds, with more than 25 million pounds of revenues derived from UK users. For those multinational groups that meet the thresholds, revenues from UK users will be taxed at 2 percent, though the first 25 million pounds of this will be exempt from the DST.
We recommend that multinational groups keep the following points in mind, even if they don't meet the UK DST's initial revenue thresholds:
- OECD members and other countries around the world have recognized the challenges to taxation of the digital economy, in particular taxation of the tech sector.
- These countries have proposed changes to the international tax framework, as recently discussed in the Vistra blog post BEPS Pillar Two reflects radically changing world of corporate taxation.
- The proposed new framework calls for among other things increased transparency around where multinational groups operate and where they generate economic value.
- As with most taxes, the UK DST’s thresholds will likely be reduced after implementation.
- The UK government has pledged to dis-apply its DST once an appropriate international solution is in place.
- Other countries such as Italy have introduced similar DSTs, and more countries will likely unilaterally implement their own DSTs in the future.