UK Autumn Budget 2017 – focus on digital taxation

Nov 27, 2017

Spread throughout the Chancellor’s Budget speech and the accompanying publications were several measures that the press is calling a “Google tax”. Broadly the measures are targeted at, in the Chancellor’s own words, “multinational digital businesses”.

The “digi-pack” of measures announced include the following:--

  • From April 2019, income tax will be applied to royalties where they relate to UK sales, when those royalties are paid to “a low-tax jurisdiction”.
  • Finance Bill 2017-18 will require online marketplaces to ensure that VAT numbers displayed for businesses operating on their website are valid. They will also be required to display a valid VAT number when they are provided with one by a business operating on their platform. This will come into force on Royal Assent in the Spring.
  • The government expects digital platforms to play a wider role in ensuring their users are compliant with the tax rules and will therefore publish a call for evidence in spring 2018 to explore what more digital platforms can do to prevent non-compliance among their users

Mirroring the current focus at both the EU and OECD level, the government also published a position paper setting out the challenges posed by the digital economy for the international corporate tax framework and its proposed approach for addressing those challenges.

That paper discussing the issues involved in ensuring that profits of multinational groups operating in the digital economy should be taxed in the countries in which they generate value.

While recognising that the issues presented by the digital economy should be addressed on a multilateral basis and wishing to inform international debate (specifically the interim report of the OECD Task Force on the Digital Economy due to be presented to G20 leaders next year), the UK government has said that it is ready to take interim action in the absence of sufficient progress.

The option favoured by the UK government, should it consider that interim action be needed, is a tax on the revenues that businesses generate from the provision of digital services to the UK market.

The position paper refers to targeting businesses that generate revenues through “intermediation” and the provision of online advertising rather than those which sell goods online or charge customers for the provision of digital content, software or services. The paper seems to favour direct collection from businesses instead of a withholding tax regime.

This favoured option looks similar to one of the EU’s proposals on digital taxation one of which is an 'equalisation tax' or levy on the turnover of digital economy businesses in the EU.

This tax would 'equalise' what digital companies should pay in the EU, had they been conventional businesses with a 'taxable presence'. Customers would pay the levy at the point of purchase and this would effectively shift the burden of taxation to the individual customer with the supplier effectively acting in a fiduciary capacity.

On first analysis, it would appear that such a levy would be allowed under EU rules without unanimity needed to introduce the proposal.