The UK has today agreed a route forward to transition away from
its Digital Services Tax (DST) towards a new global tax system
that will ensure multinationals pay their fair share in the
countries where they do business.
The deal struck by the UK, US and other European countries
outlines a DST-credit system which will bridge the gap between
the UK’s DST and the start of the new system – which is due to be
implemented in 2023.
On 8 October 2021, OECD-led discussions resulted in 136 countries
agreeing a plan for a new system where multinationals pay their
fair share of tax in the countries they do business (known as
Pillar One), whilst countries operate a minimum 15% corporation
tax rate (known as Pillar Two).
Chancellor said:
Following the landmark deal achieved earlier this month, I am
delighted we have agreed a way forward on how we transition from
our Digital Services Tax to the newly agreed global tax system.
This agreement means that our Digital Services Tax is protected
as we move to 2023, so its revenue can continue to fund vital
public services.
As part of today’s deal the US will not levy tariffs in response
to the UK’s DST, which was introduced in April 2020. The UK will
also keep the revenue raised from the DST until the Pillar One
reforms become operational. The DST credit agreement outlines
that once Pillar One is in effect, firms will be able use the
difference between what they have paid in DST from January 2022,
and what they would have paid if Pillar One had been in effect
instead, as credit against their future corporation tax bill.
This means that the UK will not lose out on tax revenue in the
transition period, as for each business, the UK either retains
the amount raised that Pillar One would have delivered if it had
been in place originally, or the total revenue from our DST.
The DST will then be removed in favour of the global solution,
which was always the UK’s intention.
The UK has been spearheading the push for an international
solution to the challenge of taxing technology multi-nationals
for nearly a decade, with the Chancellor making securing a global
agreement a key priority of the UK’s G7 Presidency. The credit
system provides a fair and sustainable solution.
The UK will continue discussions with our global partners over
the coming months as we look towards beginning the implementation
process in due course.
Further information
-
The UK introduced a temporary Digital Services Tax (DST) in
April 2020 to ensure that multinationals paid tax on the
sales they make in the UK.
-
It has always been the intention of the UK to remove its
Digital Services Tax once a global agreement is in place. As
acknowledged in 8 October’s OECD agreement, the UK, and some
of the other countries with DSTs, have been discussing with
the US how to coordinate our transition from nationally
levied DSTs to the new Pillar 1 system.
-
The agreement signed is between the US, UK, France, Italy,
Austria and Spain
-
Under Pillar One of the historic OECD agreement, the largest
and most profitable multinationals will be required to pay
tax in the countries where they operate – and not just where
they have their headquarters.
-
The rules would apply to global firms with at least a 10%
profit margin – and would see 25% of any profit above the 10%
margin reallocated and then subjected to tax in the countries
they operate. Pillar 1 will be implemented through a
Multilateral Convention (MLC) with this aiming to come into
effect in 2023.
-
Under Pillar Two, the G7 also agreed to implement a 15%
global minimum corporation tax, aiming to become effective
from 2023. This will be operated on a country by country
basis, creating a more level playing field for UK firms and
cracking down on tax avoidance.
-
View the joint press release here
-
View the joint written statement here
