Opinion Former Article

Go-It-Alone Digital Services Tax is second-best solution, say tax experts

The Chartered Institute of Taxation (CIOT) welcomes the Chancellor’s commitment to the G20 and OECD discussions to achieve a long term global solution to taxing digital multinational companies. It hopes that the Chancellor’s announcement of a proposed interim UK digital services tax will help galvanise the international community to achieve this outcome.

Glyn Fullelove, Chair of CIOT’s Technical Committee, said:

“The proposed digital services tax is a blunt instrument that is likely to over-tax companies (who have relatively small profit margins) on UK created value and under-tax others.  The expected yield of £400m (from a tax rate of 2%) suggests that the Chancellor is targeting £20 billion of revenues attributable to UK users of digital platforms. 

"We suspect that identifying and allocating these revenues will be problematic and may lead to companies disputing how much tax is due.

“The best outcome would be that the announcement today spurs the international community to find a globally agreed solution to taxing digital multinational companies by 2020 so that this UK digital services tax is never actually introduced.” 

Notes for editors

1. Corporation tax is based on profits, not revenues.

2. Under existing (internationally negotiated) principles of global tax, a multinational group’s profits are broadly speaking  taxed in the countries in which it undertakes its value-generating activities rather than, necessarily, where it makes sales.

3. A key risk arising from this proposed unilateral UK digital services tax is that other countries may be encouraged to introduce their own unilateral approaches, or even retaliate against the UK.. Whilst the UK appears to wish to target a relatively small group of the largest multinationals whose business models are heavily dependent on users, other countries may wish to tax a wider range of services, and UK based  companies may find themselves taxed overseas on profits which we look to tax in the UK.

4. 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 18,400 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
(Out of hours contact: George Crozier, 07740 477 374)

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