UK to introduce digital services tax

The UK will introduce a digital services tax starting in April 2020, Chancellor of the Exchequer Philip Hammond announced Monday as part of the rollout of the UK’s 2018 Budget.

The 2% tax will be imposed on the UK revenues of companies, including social media platforms, search engines, and online marketplaces, that make money on digital services such as advertising. Online sales will not be subject to the tax.

In introducing the budget to Parliament, Hammond called it “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”. He said the UK has been a been a leader in attempting “corporate tax reform for the digital age”.

He also said the tax would be “narrowly targeted”, focusing on UK revenues from specific digital platform business models, and would be aimed at “established tech giants” rather than startups.

The tax will be imposed on profitable companies that generate at least £500 million ($640 million) in annual global revenues from the business lines targeted by the tax. Hammond said the tax is expected to generate more than £400 million ($512 million) in annual tax revenue.

Hammond also said that the UK will continue to work with the Organisation for Economic Co-operation and Development and the G-20 to find a global solution to taxation of digital services.

To read more about the Association of International Certified Professional Accountant’s work on issues in this area, see “Association Addresses Digital Economy Tax Issues”.

— Alistair M. Nevius, J.D., (Alistair.Nevius@aicpa-cima.com) is FM magazine’s editor-in-chief, tax.