Government confirms Digital Services Tax

The government has confirmed that from 1 April it will introduce a new two per cent tax on the revenues of search engines, social media platforms and online marketplaces which derive value from UK users.

The announcement of the Digital Services Tax in the 2018 Budget was followed by a consultation which closed in February 2019. Following today’s Budget, legislation will now be introduced in the Finance Bill 2019-20 to establish the tax.

Businesses will be liable when worldwide revenues from their digital activities are more than £500 million and more than £25 million of these revenues are derived from UK users.

If the group’s revenues exceed these thresholds, its revenues derived from UK users will be taxed at a rate of two per cent. There is an allowance of £25 million, which means a group’s first £25 million of revenues derived from UK users will not be subject to the tax. It will be payable and reportable on an annual basis.

At Davos in January, the previous chancellor Sajid Javid defended the tax in the face of US treasury secretary Steven Mnuchin suggesting it discriminated against US multinationals and warning of retaliation - hinting at a tax on UK car exports to the US.

At the same time, France - which had been planning its own three per cent tax on US tech firms - announced a temporary truce with the US, giving the Organisation for Economic Co-operation and Development (OECD) the chance to agree a global deal.

Philippe Corrot, co-chief executive of online marketplace solution provider Mirakl, said that the digital tax announcement solidifies the UK’s position as a fierce antitrust enforcer.

“While it is likely to face substantial derision from tech giants, the move will help to significantly level the playing field and should be welcomed by all businesses who play by the rules.

“The initiative will also be instrumental in regulating the quality of the goods offered on marketplaces and allowing the government to have more visibility of how companies are storing and using consumer data – critical in an age of GDPR.”

He argued that international regulation still needs to be introduced by the OECD to make things truly equal. “To continue to protect consumers, it is imperative that governments monitor and tax tech giants at a fair rate – the development of these strategies and policies will help to aid the growth of a fairer and consumer-centric market.”

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