The OECD's two-pillar plan to reform international corporate tax announced on 1 July 2021 will see the withdrawal of the UK's Digital Services Tax ("DST") of 2% on the revenues of search engines, social media platforms and online marketplaces (financial and payment services are exempt) irrespective of how they monetise their platforms.
DST was introduced retrospectively by the Finance Act 2020 as a temporary measure to address the challenges posed by the digital economy to international corporate taxation.
Effective from 1 April 2020, DST is forecasted to raise £275m in its first year, with collection starting in 2021, rising to £370m thereafter, making it a relatively small contribution to the UK Treasury’s overall tax revenue but nevertheless an important consideration for companies whose activities fall in scope.
The parameters for how the DST works in practice include that:
Towards the withdrawal of DST
The UK has faced significant international (i.e. US) opposition to DST. The US has previously argued that digital services taxes "unfairly target" American firms and are discriminatory. The US threatened retaliatory commensurate measures if the UK and other European countries went ahead with their "unilateral" digital services taxes and vowed that it was "prepared to take all appropriate action to defend our businesses and workers against any such discrimination".
The inauguration of the Biden administration in January 2021 helped to restart the previously stalled OECD negotiations on the international tax challenges posed by global digital businesses. On 1 July 2021, the OECD issued a statement setting out its two-pillar plan to reform international corporate taxation (Digital Services Tax page), which the UK has committed to. Pillar one will enable the UK to tax a portion of the profits of the world's largest businesses that are attributable to consumption in the UK, including the profits of the world's largest digital businesses. As a compromise, the UK is to withdraw DST and commit to a 15% minimum level of global tax on large businesses under pillar two of the OECD's proposal. Whilst there is still work to be done, the OECD is planning to finalise a detailed implementation plan by October 2021 and implement a legislative framework during 2022. The proposal is intended to take effect from 2023.