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Will there be a Digital Services Tax?

28 January 2020

Business Tax

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The concept of a tax for large technology companies, specifically those that operate digitally, has been under debate for some time. With the Chancellor’s budget around the corner we have heard promises that this tax will be coming into effect but what will change if it does?

What is the tax?

The proposed tax will be levied against businesses depending on where they operate digitally rather than only in the countries in which they are physically based and will take 2% of the earnings from said country, in this case the UK. It is being implemented to address the concern than many of the large global technology companies such as Amazon and Apple are avoiding paying tax in all of the countries in which they operate, giving them an unfair advantage. In September last year Amazon revealed that it had paid £220million in direct taxes in the UK in 2018 – but that includes business rates of £63million and Employer’s National Insurance. Total sales for its UK operations across the same period were £10.9billion.

Who will the tax affect?

The tax will affect any businesses who:

  • Are profitable
  • Have an annual global profit of £500m which is derived from a specific set of services, i.e. digital.

What happens next?

At the moment there are calls for the introduction of the tax to be halted. American officials have stated that the tax could unfairly target US based tech companies such as those mentioned above and are warning that tariffs could ensue if it is implemented. There is also the concern that, as various other countries are considering implementing their own version of the tax there is the risk of confusion. It is worth noting that France who enacted relevant legislation for such a tax last year, have in the last few days agreed (following threats of retaliatory tariffs on products including champagne and cheers) to delay the collection of the tax until at least the end of 2020 (they collected an initial instalment in November 2019).

The Organisation for Economic Cooperation and Development (OECD) is working on the establishment of a multilateral agreement to ensure that there will be a globally consistent approach. However, Chancellor of the Exchequer, Sajid Javid, has reiterated his intention that the tax will go ahead in April 2020 and will be 'considered a proportionate tax' and would be repealed in the event of the introduction of a global solution under the auspices of the OECD.

For more information on how the Digital Services Tax could affect your business please get in touch by submitting an enquiry.