The UK has today (21 October 2021) 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 Rishi Sunak said:
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.
A statement from the Government says:
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