Opinion Former Article

Call for more clarity and greater understanding around digital tax

The Digital Services Tax (DST) has come into effect this month with questions remaining about who will pay it and how much they will pay, says the Chartered Institute of Taxation (CIOT).

The aim of the UK’s DST is to ensure that digital businesses pay tax reflecting the value they derive from the participation of UK users. This has not been possible under the existing scheme of corporation tax.

The detailed provisions implementing the DST are in the Finance Bill, which is passing through the UK Parliament. The clauses in the Finance Bill include helpful changes from the draft legislation published in July 2019, which are welcomed by the CIOT. For example, there is greater clarity as to what is in scope in relation to online market places and what constitutes a platform. In particular, there is clarification that platforms and market places used internally by businesses are not within scope. 

But Glyn Fullelove, President of the CIOT, said:

“More clarity and greater understanding about DST is needed.

“There is welcome detail in the Finance Bill aimed at assisting how to calculate revenues attributed to UK users but businesses will still face significant practical difficulties in identifying the relevant components of what is within the charge to tax. There is continued uncertainty around online gambling and gaming platforms and it is not easy to see whether these are in or out of scope.

“The general public is broadly behind the DST. Many online companies are perceived to be doing well as more business is directed online due to COVID-19 restrictions on movement. However, DST is not aimed at protecting the high street from competition from on-line retailers Nor is it aimed at stopping profits arising in the UK being shifted by multinationals out of the UK to tax havens, as some recent reports have said. Instead it creates a new taxing right on revenues, as a proxy for (and in lieu of global agreement for) allocating profits to be taxed in the UK which have never been previously subject to tax here. Existing internationally agreed rules allocate profits only to where physical activities are undertaken. Moreover, by the Government’s own estimates it is unlikely to raise amounts that materially affect the country’s finances, particularly in the context of the amounts being spent on COVID-19 measures.

“We have supported broadly the proposed design of the DST through its consultation process, as the most practical approach available to achieve the policy aims. Many companies have known for several years that they are likely to face the tax and have had time to prepare for its introduction. But it is a tax on revenues and this means the tax will inevitably over-tax some companies and under-tax others. The DST should not be viewed as a long term solution whatever one’s opinion on the broader merits of the tax; and questions remain on its scope and impact.

“The Government must manage expectations and the public perception of the taxation of the largest digital businesses, the impact of the DST and what it is intended to achieve and what it can achieve. We welcome the Government’s commitment to a multilateral solution to taxing digital multinational companies, and the commitment to repeal the DST once an appropriate global solution is in place.”

Notes for editors

The Chartered Institute of Taxation (CIOT)

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.

The CIOT’s 19,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

Contact: Hamant Verma, External Relations Officer, 0207 340 2702 HVerma@ciot.org.uk

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