UK digital services tax set to come into force amid great uncertainty

2 Apr 2020460 Views

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Companies in the UK are facing a new digital services tax, but legislation has not yet been finalised.

First mooted back in 2018, the UK digital services tax plans to place a 2pc levy on revenues earned by Big Tech firms, such as search engines and social media platforms. In February, Labour politician Margaret Hodge said its introduction was to correct the “misalignment between the place where profits are taxed and the place where value is created”.

The measure was set to come into effect yesterday (1 April), however the UK government has not yet been able to give final  approval as parliament is closed due to coronavirus precautions. The tax was included in the UK’s 2020 finance bill and, once that is brought into law, it will apply to accounting periods from 1 April, according to Bloomberg Tax.

The tax will apply to organisations that generate more than £500m in revenue, of which more than £25m is generated from users within the UK.

Last month, the Financial Times said that the UK government aims to raise around £500m a year from the tax. However, while it was designed to target the world’s largest tech firms from Silicon Valley and elsewhere, UK businesses were warned they too could be liable to pay the tax.

So far, the only companies exempt from the tax are financial services providers. There is also an allowance whereby companies that are normally located in a country with a similar digital tax will see their revenue charges reduced by 50pc.

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The UK Treasury has said that the tax would be repealed if a new global agreement similar to the tax was reached. In November 2018, plans to impose an EU-wide 3pc digital tax on Big Tech were rejected by several member states, and further talks have been put on ice until the end of this year.

In January, France agreed to delay its own digital services tax of 3pc on the revenues of tech giant such as Google and Apple until the end of 2020. Similar to the UK, France said that if OECD countries agree to a multinational digital services tax, then its own tax will not be introduced.

Although the current status of the UK tax is unclear, Russ Shaw, founder of Tech London Advocates and Global Tech Advocates, told Verdict that the timing of the tax in the middle of a global pandemic could be seriously damaging for the UK economy.

“The tech sector, along with the rest of the UK economy, is already facing the monumental impact of the coronavirus pandemic,” he said. “We should be working more closely than ever with the world’s biggest businesses to engage their substantial resources and expertise with tech start-ups and early-stage firms in the UK for what could prove a vital lifeline.”

Shaw added that its introduction could also harm any future free trade deals with the US, potentially sparking trade retaliations similar to what were proposed against France when it announced its digital services tax.

Updated, 12.15pm, 2 April 2020: This article was updated to clarify that the UK’s digital services tax has not yet been signed into law.

Colm Gorey is a senior journalist with Siliconrepublic.com

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