Source · Select Committees · Public Accounts Committee
Recommendation 1
1
Acknowledged
On the basis of a report by the Comptroller and Auditor General, we took evidence...
Conclusion
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
Government Response 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.
Government Response
Acknowledged
HM Government
Acknowledged
HM Treasury and HMRC introduced the Digital Services Tax in April 2020 to capture the value added to major digital businesses by UK users interacting with online marketplaces, social media platforms and search engines. It is a tax on turnover, not profits, for business groups whose revenues from in-scope activities are more than £500 million and where more than £25 million is derived from UK users. HMRC collected £358 million for the year 2020–21 (30% more than forecast due to the unpredictable impact of the COVID-19 pandemic), with 90% coming from five business groups. Digital Services Tax is forecast to raise around £3 billion by 2024–25. The UK is among many other countries seeking a multilateral solution to concerns about how the international tax system operates for global businesses. In mid-2023 OECD plans for around 140 tax jurisdictions to sign up to ‘Pillar One and Two’ reforms that are intended to allow countries where large multinational businesses derive income to tax them locally. This involves re-allocating some 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. When the ‘Pillar One’ reform is introduced, the UK government will retire the Digital Services Tax. Legislation requires the tax to be reviewed by 2025.1