Recommendations & Conclusions
7 items
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, …
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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, though they have varying scopes and tax rates. The introduction of such taxes reflects a wider desire for change and is a useful way of keeping up the pressure to introduce the OECD reforms. The timetable for implementation of the OECD reforms has already slipped once since the OECD announced agreement on the framework for the two-Pillar solution in October 2021. The OECD’s current timetable is for a multilateral convention signed by 140 tax jurisdictions in mid-2023, leading to implementation of Pillar One in 2024. This looks challenging and the ability to get key players on board is crucial. HMRC has not yet produced an estimate of revenue to the UK from Pillar One, telling us that too much is still uncertain about the new 6 The Digital Services Tax arrangements. HMRC says that the Office of Budget Responsibility’s estimate for annual revenues of £2 billion through Pillar Two is in line with high-level estimates from OECD. Recommendation 3: HMRC should update Parliament, within three months of international agreement on implementation of Pillar One, on progress with the implementation of the reforms.
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Government response AI summary
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 is implemented.
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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 …
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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 not recognise the value being generated for digital companies through UK online users.2 For many years members of this Committee have been raising concerns about multinationals using corporate structures to avoid paying UK tax.3
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Government response AI summary
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.
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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 …
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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 obviously welcome.14 The Digital Services Tax is set at 2% of turnover for firms whose worldwide revenues from in-scope digital activities are more than £500 million, and who derive more than £25 million of revenue from UK users.15 The Departments told us that these criteria were a sensible compromise in order to avoid capturing smaller firms, using a rate broadly in line with that used in other countries’ Digital Services Taxes.16 Its design also reflected the opposition to the Digital Services Taxes by the United States, which is the headquarters for many of the largest business groups within scope of the tax.17
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Government response AI summary
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 review.
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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 …
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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 – on the revenues received from UK users (through the Digital Services Tax) and on the profits derived from that revenue (through Corporation Tax, either in the UK or elsewhere).19 Payers of the tax can, and are, passing the cost on to users.20 10 Q 36 11 Office for Budget Responsibility, Economic and fiscal outlook, 17 November 2022, table A.6 12 Q 54 13 Q 55 14 Qq 5, 20, 45, 92 15 C&AG’s Report, para 1.9 16 Qq 12, 13, 17 17 Qq 14, 82 18 Q 90 19 Qq 24, 25 20 Qq 30, 64, C&AG’s Report, para 1.11 10 The Digital Services Tax 2 The OECD Pillar One and Pillar Two reforms The nature of the reforms
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Government response AI summary
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 review.
Read full response →
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 …
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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 reforms consist of two ‘pillars’: • Pillar One will reallocate the taxing rights over the largest and most profitable multinational business groups from their home countries to the tax jurisdictions where their customers and users are located. • Pillar Two introduces a global minimum corporate tax rate.22 Differences between the Digital Services Tax and Pillar One of the reforms
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Government response AI summary
The government's response describes Amount A and Amount B of Pillar One of the OECD reforms.
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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 …
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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 OECD that taxing the digital economy was “unfinished business.”25 The administrative approaches—such as the scope and frequency of returns—vary, as do the rates charged, which increases compliance costs for businesses. Stakeholders told the NAO that they viewed the UK’s approach to implementing the tax favourably compared to some other countries.26 The United States, home to many of the businesses most affected, has opposed these taxes and threatened sanctions in response.27
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Government response AI summary
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 review.
Read full response →
HM Treasury
12
Conclusion
Forty-Fourth Report - The Digital Servi…
Acknowledged
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 …
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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 mid- 2023, with the aim of the Pillar One reforms coming into force in 2024. This represents a slippage of one year since the initial announcement in October 2021, although HM Treasury said it still expects the timetable to be met.35 It has proved easier for countries to agree on the destination of reallocated profits than where they should move from.36 HM Treasury considered that the main challenge would be to ensure that the key signatories to the Convention actually implemented it.37 Most of all, the cooperation of the United States is crucial, given its opposition to existing Digital Services Taxes.38 29 Qq 6,7 30 Qq 55, 56 31 Q 28 32 HM Treasury, Autumn Statement 2022, 17 November 2022. 33 Qq 60–62 34 Qq 56–58 35 Qq 42, 43; C&AG’s Report, para 1.4, 1.12, 1.14 36 Q 28 37 Qq 18, 59 38 Qq 82, 100–102 12 The Digital Services Tax 3 Future challenges in taxing digital businesses Consequences of delay in introducing the OECD reforms
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Government response AI summary
The government agrees with the committee's observation, reiterating the aim to finalise Pillar One rules in 2023 and the process for its global implementation, including parliamentary scrutiny.
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HM Treasury