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 …
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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 2025. We assume that the tax would continue in some form if possible but there is a question about its long-term sustainability. While there may be no evidence of active tax avoidance or evasion by businesses to date, this may change if the life of the Digital Services Tax is extended. Businesses such as those within the scope of the tax traditionally employ significant resources to ensure that their exposure to tax is minimised, and they may consider that the Digital Services Tax is more worthy of such attention if it is extended. Methods for ensuring compliance are untested and could require cooperation between countries. The Digital Services Tax 7 Recommendation 5: Ahead of the formal requirement to review the tax in 2025, HMRC should develop a contingency plan for what happens if the Digital Services Tax needs to be extended, including a robust process for addressing non- cooperation with its compliance regime. 8 The Digital Services Tax 1 Design and implementation of the Digital Services Tax
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Government response AI summary
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 contingency plan for the potential …
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HM Treasury
10
Conclusion
Forty-Fourth Report - The Digital Servi…
Not Addressed
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, …
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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, it will cover online sales. Requirements for global turnover of more than €20 billion and profits exceeding 10% of turnover will effectively limit coverage to around 100 of the world’s largest and most profitable businesses.28 More businesses will pay Pillar One because the tax is scoped more widely than the Digital Services Tax, but it is also likely that some businesses paying Digital Services Tax will not pay Pillar One. HM Treasury and HMRC do not think that experience with the Digital Services Tax will help with the implementation of Pillar One due to likely differences in the design, not least that Pillar 21 C&AG’s Report, para 1.4 22 C&AG’s Report, para 1.12 23 Qq 5, 46 24 Q 94 25 Q 16 26 Qq 12, 96 ; C&AG’s Report, paras 1.7, 3.6 27 Qq 14, 82 28 C&AG’s Report, para 1.13 The Digital Services Tax 11 One will be a tax on profits.29 This is despite HMRC explaining to us that the introduction of the Digital Services Tax provided the opportunity to work closely with a group of likely future Pillar One taxpayers.30
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Government response AI summary
The government's response outlines the scope and aims for finalising Pillar One's Amount A and B rules in 2023, without directly addressing the committee's observations on how DST experience will inform Pillar One implementation.
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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 …
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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 would have paid under Pillar One during the ‘transition’ years of 2022 and 2023.47 It also the case that the tax does not seem to have had any observable impact on businesses to date.48 HMRC is not separately measuring the specific impact on UK-based businesses.49 39 Q 19 40 Q 105 41 Qq 22, 23, 103, 104 42 Qq 44, 91 43 Evidence submitted by the Chartered Institute of Taxation 44 Qq 24, 25 45 Qq 26, 27 46 Q 90; Evidence submitted by the Expedia Group, 47 Qq 81, 83; C&AG’s Report, para 15 48 Qq 31–33 49 Q 35 The Digital Services Tax 13 Business’ compliance with the Digital Services Tax
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HM Treasury