Source · Select Committees · Public Accounts Committee
Forty-Fourth Report - The Digital Services Tax
Public Accounts Committee
HC 732
Published 5 April 2023
Recommendations
5
Not Addressed
There is a significant risk that the Digital Services Tax may require extension beyond its...
Recommendation
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 …
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Government Response 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 extension of the Digital Services Tax and a robust process for addressing non-cooperation with its compliance regime.
HM Treasury
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Conclusions (11)
10
Conclusion
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, …
11
Conclusion
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 …
12
Conclusion
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 …
13
Conclusion
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 …
14
Conclusion
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 …
15
Conclusion
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 …
16
Conclusion
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 …
17
Conclusion
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 …
18
Conclusion
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 …
19
Conclusion
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 …
20
Conclusion
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. …