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Taxing the digital economy: A moving target

Posted on 15 November 2019

Taxing the digital economy: A moving target

Reforming the system of assessing and collecting tax from the digital sector has attracted wide interest for some years now.

The European Commission and several member states have sought to make progress towards ensuring the digital economy is taxed in a coherent and supportive manner since 2017. The EU Commission continues to emphasise the benefits of achieving a unified international reform, at least in the EU, as opposed to member states adopting independent measures that differentiate on how taxable value is created and where it is taxed.

In 2019, there have been three key developments:

  1. In April 2019, the UK implemented a new tax regime on "offshore receipts in respect of intangible property" (ORIP). Broadly, the rules impose a 20% income tax charge on certain non-UK residents receiving payment for enjoyment of intangible property "referable" to UK sales. However, as the original rules inadvertently affected a wider scope of persons and IP than intended, in October the government published amendments to seek to alleviate the unintended outcomes.
  2. In July 2019, the OECD announced details of the next steps to be taken in studying several possible tax proposals to find a unified international approach for public consultation by the end of 2019.
  3. In July 2019, the UK government confirmed that from April 2020 it will implement a new "Digital Services Tax" (DST). Broadly, the DST will be levied at 2% on larger businesses that provide a social media platform, search engine or online marketplace (or associated advertising) to UK users. The draft legislation and guidance for the DST were published in July 2019, subject to consultation. Updated guidance is expected later this year.

Despite implementing the unilateral measures, HMRC has confirmed that it supports international unified reform as the long-term solution and will reportedly dis-apply the DST "once an appropriate international solution is in place". Notably, HMRC only expects its measures to impact "a small number of large multinational groups that hold intangible property in low tax jurisdictions".

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