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Is Digital Services Tax a good idea?

The UK Budget 2018 announced that a ‘Digital Services Tax’ is to be introduced from April 2020 – but will this be practical?

According to Chancellor Phillip Hammond, the planned Digital Services Tax in 2020 is an initiative aimed at “established tech giants” rather than smaller start-up companies. This is because larger corporations pay less tax than most within the UK.

Therefore with an implementation of a Digital Services Tax against Social Media Platforms and revenue generated from internet sales generally, Hammond proposes that a 2% tax rate shall now be applied from April 2020 to all revenue generated, as opposed to just profits incurred, within the UK digitally. The proposal for Digital Services Tax is to have a ‘formal review’ in 2025.

In light of this, the EU has also started its own initiative to implement a Digital Services Tax, in which the EU Commission announced last year that all “significant” online revenues could face a 3% tax obligation. However, any changes to EU Tax Reforms requires the support of all EU Member States so to become law and thus progress towards this 3% tax law remains ambitious at present.

Yet despite this, at the start of 2019. France recently went ahead with its own Digital Services Tax, ahead of other EU countries at present. The EU Commission is still hesitant however due to the possibilities of EU Tax on digital services breaching international treatment for all companies on a worldwide scale.

Therefore, is a Digital Services Tax really a practical goal of nations worldwide to implement? Can the Tax really only impact larger online companies rather than smaller start-ups? One of the possible flawed fundamentals of the possible Tax law is that by being based online predominately, Companies operate from a platform outside of international borders in the ‘Cyber-Web’, although they profit from revenue within borders once products are sold. Therefore, can Tax be fully applied to Company based online if cyber-borders are not the mirror of physical borders?

If you would like to discuss this article further or have any general legal enquiries, please contact one of our highly qualified solicitors on 020 3318 5794 or via email at londoninfo@hudsonmckenzie.com

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