The UK tax office, HMRC, has confirmed the introduction of a new 2 percent digital services tax from 01 April 2020. This will be applied on the revenue of international search engines, social media services and online marketplaces deriving value from UK users.
The UK government still believes that reform of international corporate tax rules is the most sustainable long-term solution to the tax challenges arising from digitalisation, and is prepared to dis-apply the Digital Services Tax once an appropriate international agreement has been reached.
The UK government will introduce new legislation to establish the Digital Services Tax, which will be applied when the group's worldwide revenues from digital services are more than GBP 500 million and more than GBP 25 million is generated from users in the UK. There is a GBP 25 million allowance, so the first GBP 25 million revenues generated from UK users will not be subject to the tax, which will payable and reportable on an annual basis. HMRC estimates that the tax could generate additional annual income of more than GBP 500 million by 2024/2025.
The Internet Association (IA) of North America said it was disappointed by the decision to move forward with the tax, warning that it would act as a trade barrier at a time when the UK and US are about to start free trade talks. The IA insisted that the best way forward is for world governments to engage with the OECD on a global solution for the digital economy, and said it was important that the UK upheld its commitment to withdraw the tax once a global solution has been agreed.
The US Computer & Communications Industry Association (CCIA) also criticised UK plans to proceed with the digital services tax plans, warning that it would threaten the strong US-UK trade-in-services relationship. The CCIA said that it remained supportive of continuing work at the OECD to reach a lasting, global solution.
