by Jason Gorringe, Tax-News.com, London
27 January 2020
The UK Chancellor, Sajid Javid, has said the UK intends to push ahead with the introduction of a digital services tax from April 2020, despite warnings from the US that it would consider tariffs on UK-made goods.
Steven Mnuchin, the US Treasury Secretary, has indicated that the US Government may retaliate against the levy, as it considers it will disproportionately affect US multinational companies. It has said it is considering hiking tariffs on UK automobile exports to the US market in response.
The announcements come after France and the US were said to have resolved a similar dispute regarding France’s digital services tax. France has now agreed to cease collection of its digital services tax this year, in return for the US dropping its plans to introduce steep tariffs on French goods.
The UK Government has proposed that its DST will apply to revenue generated by search engines, social media platforms, and online marketplaces, to revenues from those activities that are linked to the participation of UK users. It will apply only to groups that generate global revenues from in-scope business activities in excess of GBP500m (USD659m) per year. Businesses will not have to pay tax on their first GBP25m of UK taxable revenues.
The regime will include a safe harbor provision that will exempt loss-making businesses as well as provisions that will reduce the effective rate of tax on businesses with very low profit margins. It is proposed that the tax will be deductible against UK corporation tax under existing principles, but it will not be creditable.