The United Kingdom is working on its own digital services tax, which will be legislated for in the Finance Bill 2019-2020 and will apply from April 2020.
The U.K. government launched a consultation on the DST proposal and invited responses by February 28 on the plan's design, implementation, and administration. The DST is intended to be an interim measure until agreement is reached at an international level on how to best tax digital business profits.
This article summarizes international efforts led by the OECD and EU to address the perceived tax concerns arising from the digitalization of business. It also discusses other U.K. legislative tax measures meant to focus on some of the base erosion and profit-shifting problems the U.K. government hopes the DST will address.
OECD and EU Efforts
The OECD has been considering the tax questions arising from the digitalization of the economy as part of its BEPS project. The Task Force on the Digital Economy considered those questions and in 2015 published its action 1 report and in 2018 its action 1 interim report. On February 13 the OECD published a consultation document, which was followed by a public consultation meeting in Paris March 13 and 14, and on May 29 the OECD approved a work program on developing a consensus-based solution to the tax challenges arising from digitalization.
That program, which will revisit fundamental aspects of the international tax system, proposes a two-pillar approach to enable the OECD to issue by 2020 its final recommendations for a long-term global solution. The first pillar focuses on reconsidering and agreeing on an approach used to determine nexus for tax purposes and the appropriate allocation of profits. The second pillar focuses on designing a system to ensure multinational enterprises pay a minimum amount of tax. To meet its target, the OECD must agree to an outline of its solution by January 2020.
In March 2018 the European Commission published two proposals for the taxation of the digital economy. The first (COM(2018) 147 final) was based on a long-term solution that proposed to tax a digital permanent establishment, while the second (COM(2018) 148 final) was a shortterm proposal that would apply to revenues created from specific digital activities. In March 2019 the EU Economic and Financial Affairs Council failed to reach consensus on a way forward.
It seems likely that there will not be an agreed approach in the EU until at least 2020. In the meantime, several EU states have introduced, or are considering introducing, unilateral measures, including the United Kingdom.
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