11th July 2019 – Following the government’s draft legislation for digital service tax released today, Chris Denning, Corporate and International Tax Partner at MHA MacIntyre Hudson, says the UK ought to have waited for a comprehensive international agreement.
“The draft legislation published today confirms the UK Government’s intention to go it alone with a digital services tax (DST), in the absence of international agreement. DST will commence from 1 April 2020 at 2% of relevant UK derived digital services revenues.
“Going it alone is not quite the case though, as by some coincidence the French Government has also confirmed in the last 24 hours that it too is pushing ahead with its version of DST. The French are therefore slightly ahead in attracting international and particularly US ire, given DST is clearly focused on a small number of US Technology giants. This is likely to lead to retaliatory measures, most probably tariffs on French exporters to US markets.
“From a UK perspective the impact assessment note predicts a return to the exchequer of £370m in 20/21, rising to £440m by 22/23. While these are not small amounts, as a percentage of the UK’s total tax they are all but immaterial. As a result it would be best for the UK to simply wait until an international consensus is reached before introducing such measures, in particular given Brexit uncertainty and the need to portray the UK as an attractive place to locate and do business.
“Another issue is that although the de minimus limits appear a relatively high bar, £500m of digital services revenue and more than £25m derived from the UK before DST needs to be calculated, in practice this will catch a lot “smaller” groups, some of which may be wholly UK based, potentially losing 2% of their top line.”
