Digital Services Tax could be a barrier to business, says ICAS

Susan Cattell

Westminster has said its plan is “designed as an interim response, pending global reform, to the challenges that digital businesses create for the international corporate tax system”.

The government is consulting on the detailed design and implementation of that tax ahead of its inclusion in the 2019-20 Finance Bill.

Commenting on the HMRC and HM Treasury consultation, Digital Services Tax, Susan Cattell, head of tax at ICAS, said: “A Digital Services Tax could create cost and data protection issues causing companies to increase prices or even block UK users from accessing services.

“Given the ongoing uncertainties presented by Brexit, we believe the Government should be focused on promoting the attractiveness of the UK for business investment. 

“We do not believe that the rapid introduction of a temporary Digital Services Tax in the UK is in line with the objectives of enhancing the country’s position as an attractive investment destination, or of providing certainty for investors.”

In the 2018 Budget, Chancellor Philip Hammond announced that the UK Government would take unilateral action to impose a Digital Services Tax (DST), for an interim period, until an international agreement can be reached.

It is proposed that DST at 2 per cent is levied from April 2020 onwards on the revenues of search engines, social media platforms and online marketplaces where those revenues are linked to the participation of UK users.

The UK will continue to try to reach a satisfactory international solution with its partners in the EU, G20 and OECD, and will repeal DST if and when this has been achieved. The Government has also committed to reviewing DST in 2025 to consider whether the tax is still required; the consultation document proposes the inclusion of a review clause in the legislation.

DST is expected to bring in £1.5 billion over four years.

“The Government should focus on helping the OECD to achieve international agreement on a long-term approach to taxing the digital economy rather than unilaterally introducing an interim UK Digital Services Tax,” said Ms Cattell.

“Highly digitalised multinational companies present challenges to the international tax framework but unilateral, temporary measures to tackle them create problems.”

“The UK’s proposed Digital Services Tax could give rise to double (or multiple) taxation as other jurisdictions introduce similar measures. It will create an administrative burden and compliance costs which are disproportionate for a temporary measure.”

“The OECD has announced a consultation and a timeline for international action: the UK should concentrate on helping to achieve a successful international outcome.”