Recommendations & Conclusions
20 items
2
Recommendation
Forty-Fourth Report - The Digital Servi…
Accepted
HMRC implemented the Digital Services Tax with little cost, and the experience could provide valuable lessons for other new taxes. HMRC implemented the tax on schedule for only £6.3 million, less than budgeted, though there will be ongoing compliance costs. The small population of payers (18 in 2020–21) means that …
Government response. The government agrees and says HMRC carries out an evaluation on the implementation of all measures that require new or updated systems and processes, and that they have since implemented other taxes learning lessons from the design and implementation of …
HM Treasury
3
Recommendation
Forty-Fourth Report - The Digital Servi…
Acknowledged
There are obvious challenges facing the OECD in implementing the multilateral Pillar One reforms to the planned timetable, which could have major implications for the future of the Digital Services Tax. Some other countries, including France for example, have also introduced new taxes similar to the UK’s Digital Services Tax, …
Government response. The government agrees and reiterates the target implementation date is 2024, describing Amount A of Pillar One and stating that Parliament will be able to scrutinise and ratify the convention through normal Parliamentary procedures before Amount A of Pillar One …
HM Treasury
4
Recommendation
Forty-Fourth Report - The Digital Servi…
Accepted
HM Treasury and HMRC have a vital role in ensuring that the multilateral assurance framework for Pillar One of the OECD reforms will meet Parliament’s desire for accountability and transparency. The 140 jurisdictions involved in the development and implementation of the reforms will have very differing cultures around the transparency …
Government response. The government agrees and will write to the committee with the UK's objectives for the multilateral administrative framework, including audit arrangements and states that the forecasted revenues for Amount A will be published in the usual way after OBR scrutiny, …
HM Treasury
5
Recommendation
Forty-Fourth Report - The Digital Servi…
Not Addressed
There is a significant risk that the Digital Services Tax may require extension beyond its intended lifespan, and that this could prompt changes in taxpayer behaviour. Should the OECD reforms be delayed beyond 2024, the Government is required by law to review the operation of the Digital Services Tax in …
Government response. The government response focuses on Department for Business and Trade efforts to recoup local authority grant payments made in error in the first wave of Covid support schemes, but it does not address the need for HMRC to develop a …
HM Treasury
1
Conclusion
Forty-Fourth Report - The Digital Servi…
Acknowledged
On the basis of a report by the Comptroller and Auditor General, we took evidence from HM Treasury and HM Revenue & Customs (HMRC) on the Digital Services Tax.1 The government introduced the Digital Services Tax in April 2020 because it was concerned that the existing international tax system did …
Government response. The government acknowledges the committee's conclusion by summarizing the Digital Services Tax and its intended purpose as an interim solution until the OECD reforms are introduced.
HM Treasury
6
Conclusion
Forty-Fourth Report - The Digital Servi…
Acknowledged
The Digital Services Tax is an interim solution to meet a perceived a lack of ‘fairness’ in the current system, and is not on its own intended to deliver a ‘fair’ system, or to level the playing field between online retailers and the high street, although the additional receipts are …
Government response. The government acknowledges the committee's conclusion, stating that the DST is a pragmatic interim solution focused on businesses for which the policy concern is most relevant and administrative burdens are considered manageable, and that tax policy is kept under constant …
HM Treasury
7
Conclusion
Forty-Fourth Report - The Digital Servi…
Acknowledged
HMRC did not take the view that the tax was significant enough to have a noticeable additional burden on businesses. However, evidence submitted to us by one travel business complained of the greater impact on those operating high-volume, low-margin businesses.18 HMRC also acknowledged that a business will be taxed twice …
Government response. The government acknowledges the committee's conclusion, stating that the DST is a pragmatic interim solution focused on businesses for which the policy concern is most relevant and administrative burdens are considered manageable, and that tax policy is kept under constant …
HM Treasury
8
Conclusion
Forty-Fourth Report - The Digital Servi…
Acknowledged
Since 2013, the Organisation for Economic Co-operation and Development (OECD) and the G20 group have worked together under the ‘Base Erosion and Profit Shifting’ project, and subsequently with around 140 countries and tax jurisdictions under the ‘Inclusive Framework on Base Erosion and Profit Shifting’, to reform international tax rules.21 These …
Government response. The government's response describes Amount A and Amount B of Pillar One of the OECD reforms.
HM Treasury
9
Conclusion
Forty-Fourth Report - The Digital Servi…
Acknowledged
The Digital Services Tax is intended to fill the gap until the implementation of Pillar One, albeit as a ‘second-best’ solution.23 Other countries have also introduced a Digital Services Tax, including France, Italy, Spain and Austria.24 HM Treasury told us that this reflected the widespread feeling among members of the …
Government response. The government acknowledges the committee's conclusion, stating that the DST is a pragmatic interim solution focused on businesses for which the policy concern is most relevant and administrative burdens are considered manageable, and that tax policy is kept under constant …
HM Treasury
10
Conclusion
Forty-Fourth Report - The Digital Servi…
Pillar One’s scope will differ from that of the Digital Services Tax. First, it will be a tax on profits rather than revenues. Second, it will apply to a much broader range of activities as it is not simply aimed at online business groups. However, unlike the Digital Services Tax, …
HM Treasury
11
Conclusion
Forty-Fourth Report - The Digital Servi…
It is unclear how the receipts from Pillar One will compare to the Digital Services Tax as HMRC has not yet modelled the likely receipts from businesses liable to pay Pillar One, prior to agreement being reached on how profits will move between countries.31 The Office of Budget Responsibility has …
HM Treasury
12
Conclusion
Forty-Fourth Report - The Digital Servi…
Legislative decisions, implementation decisions and the operation of compliance regimes for Pillars One and Two will be carried out in line with agreed conventions and frameworks.34 In July 2022 the OECD announced that the multilateral convention which will implement Pillar One globally will be open for jurisdictions to sign in …
HM Treasury
13
Conclusion
Forty-Fourth Report - The Digital Servi…
Legislative decisions, implementation decisions and the operation of compliance regimes for Pillars One and Two will be carried out in line with agreed conventions. As previously stated, the OECD’s Pillar One is due to supersede the Digital Services Tax in 2024, and HM Treasury is keen for this to happen …
HM Treasury
14
Conclusion
Forty-Fourth Report - The Digital Servi…
The Chartered Institute of Taxation describes the Digital Services Tax as a ‘blunt instrument’.43 There are aspects of the tax’s design that are tolerable in the short-term but would need to be addressed if its life was to be extended appreciably: • The Digital Services Tax is a tax on …
HM Treasury
15
Conclusion
Forty-Fourth Report - The Digital Servi…
As long as Pillar One is introduced at some point, these issues will be partly offset by the fact that those businesses paying Digital Services Tax and Pillar One will be able to reduce their Corporation Tax payments by the amount that their Digital Services Tax payments exceeded what they …
HM Treasury
16
Conclusion
Forty-Fourth Report - The Digital Servi…
HMRC’s compliance work on 2020–21 payments of the Digital Services Tax was ongoing when we took evidence in December 2022.50 This has proved a much larger task than anticipated, as the number of business groups within the scope of the tax requiring review has grown to 101, covering 216 online …
HM Treasury
17
Conclusion
Forty-Fourth Report - The Digital Servi…
HMRC and HM Treasury said that they have not seen any evidence of tax avoidance so far, for example by changing business models, as businesses have not regarded it as worth their while. But they assured us that they are aware of the risks and that anomalies would be investigated.54 …
HM Treasury
18
Conclusion
Forty-Fourth Report - The Digital Servi…
As stated above, HMRC has not yet faced the situation where an overseas-based business refuses to pay the correct amount of tax as assessed by HMRC. HMRC told us that it has bilateral and multilateral agreements with other countries that would allow it to ask the tax authority in the …
HM Treasury
19
Conclusion
Forty-Fourth Report - The Digital Servi…
Pillar One will operate within a multilateral administrative framework, with the emphasis on international cooperation. This will be very different to how HMRC currently ensures compliance with its tax regime.58 Getting 140 tax jurisdictions to agree on a framework for administering the new system will be a key challenge, but …
HM Treasury
20
Conclusion
Forty-Fourth Report - The Digital Servi…
There is a delicate line to tread between accountability, transparency and the maintenance of taxpayer confidentiality. The Digital Services Tax illustrates how difficult it is to talk about these issues in a way that protects confidentiality when you are dealing with a tax covering a small number of high-profile payers. …
HM Treasury