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Sunak hits tech giants with digital services tax

From 1 April 2020, the government will introduce a 2% tax on the UK revenues of large, multinational search engine, social media and online marketplace providers.

18th Mar 2020
Staff Writer AccountingWEB
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AccountingWEB 2020 Budget coverage, sponsored by Countingup

Originally announced in the 2018 Budget, last week’s Budget speech confirmed that the digital services tax (DST) would go ahead despite concerns from UK businesses over potential retaliation from the US government.

The tax will apply to businesses that earn more than £500m in worldwide revenues from social media, search engines or online marketplaces. The first £25m of a company’s UK revenue from these services will not be subject to the digital services tax, but any amounts earned above that threshold will be taxed at 2%.

The digital services tax is a political response to low rates of corporation tax paid in the UK by tech giants such as Google, Facebook and Amazon. The measure is designed to ensure “the amount of tax paid in the UK reflects the value these businesses derive from their interactions with, and the contributions of, an active user base”, the Budget 2020 report explained.

There was some confusion on Budget day about how much the digital services tax would raise. The figures in the PDF version of the Budget red book (Table 2.1) suggested that there will be a £65m windfall this year, then negligible earnings for three years until the receipts kick in again at £70m for 2023-24.

The original edition of the Budget 2020: Overview of tax legislation and rates (OOTLAR) released on Budget day included two Exchequer impact tables, one with the £135m revenue estimate and a second table that projected an exchequer yield of £2.4bn over the next five years (see extract below).

A third HTML version of the information note showed an estimated impact nearer £1.5bn until it was subsequently amended. The policy papers stated that “HMRC will incur costs of up to £8m to enable both new IT systems and processes to be developed as well as additional staff to monitor and administer the new tax”.

Digital Services Tax - Exchequer impact figure confusion

Unease from tax experts

This measure has been simmering quietly on the back burner since it was proposed 15 months ago and flared into a public spat at the World Economic Forum in January. Even as the government commits to the DST, some UK commentators were wary of the implications for international trade. 

“The looming threat of trade wars between the US and the UK over digital tax proposals, evidences just some of the significant problems that result from the individual countries acting on their own and without international consensus,” said Taxand managing director Tim Wach.

“Though labelled ‘temporary’ – before international consensus is reached – these measures move us further away from the certainty and consistency craved by multinational business and necessary for the efficient operation of the international economy.

“Unilateral approaches on digital tax also run the risk of stifling entrepreneurship and efficiency, including by punishing loss-making or marginally profitable companies in a start-up or turn-around phase, as well as heightening the cost of compliance.”

Replies (4)

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By bobsto12
19th Mar 2020 09:24

It's not a situation that can be allowed to continue. By not paying taxes they are wrecking the societies they profit from.
You'll never get them to change on their own, the greedy never do.

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By RogerMT
19th Mar 2020 09:38

Not before time. Ironic how this Tory government is introducing a socialist tax, that had it been introduced by a Labour government (it was Labour's idea, after all), would have been howled down from the rooftops.
Keep safe, people!

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By Meltonmark
19th Mar 2020 11:43

So, the tech giants will introduce a surcharge on their servies, just like the thieving power companies did...Climate Change Levy... that just disappears into someone's pocket. Nice one, Sunak.

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By chrisowen
19th Mar 2020 15:38

The expected windfall of £65m seems rather low. Does anyone have an estimate of the lost corporation tax that these companies should be paying ?

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