The Organisation for Economic Co-operation and Development (OECD) has outlined a new timetable for reaching an agreement on the digital taxation of multinational businesses.
EU member states have been unable to reach an agreement on plans for an international Digital Services Tax (DST). Consequently, the OECD now plans to introduce a global digital tax framework.
Certain member states have already started to create and implement their own policies, and the European Commission is also seeking to implement an EU-wide DST.
Commenting on the matter, Angel Gurría, Secretary General of the OECD, said: ‘Important progress has been made through the adoption of this new Programme of Work, but there is still a tremendous amount of work to do as we seek to reach, by the end of 2020, a unified, long-term solution to the tax challenges posed by the digitalisation of the economy.’
In regard to domestic plans, the UK’s own DST is set to take effect from 2020. The DST was announced by Chancellor Philip Hammond during the 2018 Autumn Budget, and will apply a 2% tax to the revenues of certain digital businesses.
A group of MPs has called on the government to tax the profits of social media businesses.
The All Party Parliamentary Group (APPG) on Social Media and Young People’s Mental Health and Wellbeing recently published a report which outlined the impact of social media on the health of young people.
The group has suggested creating a Social Media Health Alliance, which would be funded by a 0.5% tax on the profits of social media companies. MPs hope that the money would be used to fund research and help ‘draw up clearer guidance’ on the impact of social media on health and wellbeing.
Commenting on the issue, Chris Elmore MP, Chair of the APPG on Social Media and Young People’s Mental Health and Wellbeing, said: ‘For far too long social media companies have been allowed to operate in an online ‘Wild West’.
‘And it is in this lawless landscape that our children currently work and play online. This cannot continue. As the report makes clear, now is the time for the government to take action.’
A government spokesperson responded: ‘The government will soon publish a White Paper, which will set out the responsibilities of online platforms, how these responsibilities should be met and what would happen if they are not.’
The government plans to implement a so-called Digital Services Tax (DST). The DST is set to take effect from April 2020, and will apply a 2% tax to the revenues of certain digital businesses.
The Chartered Institute of Taxation (CIOT) has urged the government to make its planned Digital Services Tax (DST) a ‘temporary fix’ to the issue of taxing online businesses.
The DST is set to take effect from April 2020, and will apply a 2% tax to the revenues of certain digital businesses. A double threshold will exist, meaning that businesses will have to generate revenues from in-scope business models of at least £500 million globally to become taxable under the DST.
The CIOT stated that the UK’s DST should ‘ideally last no longer than five years’. It has also called for the government to repeal the DST ‘as soon as there is a multilateral agreement’ through the Organisation for Economic Co-operation and Development (OECD) on a ‘global method’ to tax digital businesses.
‘Given the nature of the tax, a pragmatic approach will be required in order for it to be implemented effectively,’ said Glyn Fullelove, Chair of the Technical Committee at the CIOT.
‘This is because revenue taxes such as this are a blunt instrument that cannot accurately represent the tax on the profits related to user-based value on all businesses on which it is imposed. It will inevitably over-tax some companies and under-tax others.’
In regard to international developments on the matter, EU member states have so far been unable to reach an agreement on plans for an international DST.
The Treasury Committee has launched an inquiry into the UK’s business rates system, in order to assess the impact of business rates on firms.
The Committee intends to examine how changes in government policy have altered the business rates system. It will also analyse ‘how the current business rates system is operating’.
Additionally, the inquiry will assess the ‘economic justification’ for a property-based business tax, taking into account the impact of business rates on rental prices and property prices. The Treasury Committee also stated that it will consider alternatives to property-based business taxes, such as the proposed Digital Services Tax.
The Federation of Small Businesses (FSB) welcomed the inquiry. Mike Cherry, its National Chairman, said: ‘The FSB has worked with the government to secure a set of reforms to business rates since 2016 – doubling small business rate relief, linking annual rises to CPI, transitional relief, and now a high streets discount.
‘The tax, however, remains regressive, and not linked to ability to pay.
‘We welcome the inquiry as the next step in building on the recent work to help, and sort out a modern tax system that balances the need to fund public services with protecting our vibrant 5.6 million-strong small business community.’
In his 2018 Autumn Budget speech, Chancellor Philip Hammond unveiled a so-called ‘Digital Services Tax’, which will require certain digital businesses to pay tax on sales generated in the UK.
Over the past few years, a handful of large international companies have been subject to criticism for paying only small amounts of tax on their UK profits. The Chancellor previously stated that international agreements ‘need to be put into place’ to help tackle the issue; however, the Organisation for Economic Co-operation and Development (OECD), the body responsible for co-ordinating economic policy, has reportedly struggled to come to a decision on the matter.
The European Commission (EC) separately proposed an EU-wide 3% digital tax, but has so far failed to convince some EU member states.
The Digital Services Tax will take effect from April 2020, and will target ‘established technology giants’ with global revenues from in-scope business activities in excess of £500 million per annum, as opposed to tech start-ups.
Commenting on the tax in his Budget speech, Mr Hammond said: ‘It’s clearly not sustainable, or fair, that digital platform businesses can generate substantial value in the UK without paying tax here in respect of that business.’