Association urges rethinking on UK digital services tax

The Association of International Certified Professional Accountants expressed its concerns about the proposed UK digital services tax in a recent letter to Mel Stride, financial secretary to HM Treasury and paymaster general. In the letter, sent by Andrew Harding, FCMA, CGMA, the Association’s chief executive–Management Accounting, the Association urged the UK government to reconsider introducing a temporary digital services tax and instead work with the Organisation for Economic Co-operation and Development (OECD) to find international consensus on taxation of the digitalised economy.

The proposed digital services tax was announced last October and would take effect in 2020. It would apply until a global solution to the taxation of digital services is implemented. 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. The tax will be imposed on profitable companies that generate at least £500 million ($650 million) in annual global revenues from the business lines targeted by the tax. Online sales will not be subject to the tax.

The Association’s letter expressed concerns about the temporary nature of the proposed digital services tax. Temporary tax measures, the letter says, “often give rise to transition issues when a global consensus on taxation is introduced, … can be difficult to unwind, and often introduce costly reporting regimes for both tax authorities and taxpayers.”

The Association also questioned how administrable the proposed tax will be, given the difficulty of identifying users of digital services and what country they were in when the digital transaction occurred.

The Association also made specific comments about the scope of the tax, the proposed approach to defining a user for purposes of the tax, and the proposed approach to determining user locations. The letter recommends that further clarity be provided on how to determine a UK user, given the challenges of determining user location and attendant privacy issues.

The Association recently issued a policy paper on key issues in the taxation of the digitalised economy. The OECD is co-ordinating an international effort involving 110 countries to look at the tax challenges posed by the digitalisation of the global economy and in February opened a public consultation on possible solutions. A public hearing is scheduled for later this week.

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