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The Digital Services Tax – a help or a hindrance?

14 November 2018 #Information Technology


Chancellor Hammond’s new Digital Services Tax may not be the robust tax-attack on Tech Giants some were hoping for but many believe it’s a tangible step in the right direction. 

Last year Facebook paid £15.8m in UK tax despite collecting a record £1.3bn in British sales. There are similar stories out of the Amazon and Google camps too, who paid £4.5m on sales of £8.7bn and £49m on sales of £7.6bn respectively. Most agree that this falls far short of expectations and, following rumblings in Spain where a new DST is to be brought in by 2019, and the European Commission’s DST proposal back in March, the UK is taking its own stand.

As of 2020, social media firms, online marketplaces and search engines will pay a 2% tax on specific UK generated revenues such as advertising. However, the first £25m is tax exempt and the tax will only apply to firms which have global revenues of at least 500m and are in profit. Whilst the move has been welcomed by smaller UK based business who have struggled to compete with the larger tech companies, many have been quick to point out the rather limited application the tax will have. The Office for Budget speculates that around 30 companies would be affected.

Working out who is and isn’t taxed in the digital world has long been seen as one of the great financial riddles, and the projected £400m return has even been cited as the ‘most uncertain figure in the budget’ by a member of the Institute of Government. It’s clear that the prospect of asking tech giants to shoulder the financial burden, rather than upcoming Tech start-ups, is based on good intentions. However, proposing a new means of restricting the profits of multinationals when the UK will soon be desperate for post-Brexit investment might be a step in the wrong direction, especially when coupled with a potential US tax rebuttal. The fact that this new tax is almost exclusively aimed at some of their most profitable and pioneering companies has not been missed by US politicians and fears of retaliation or even complaints to the World Trade Organisation are unlikely to ease current tensions let alone assist any future US-UK trade deals.

The tax has therefore raised more questions than it answers and its limited application is unlikely to quell public outrage about the low tax payments made by the some of the world’s largest enterprises; Apple, Uber, Twitter, Deliveroo and Snapchat are all exempt. But the potential is there and in an increasingly digitally driven economy, early steps such as these might be paramount to future governance.

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Jacob Montague

Jacob Montague
Trainee Solicitor

E: jmontague@clarkslegal.com
T: 0118 960 4613
M: 0790 9964 585

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