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UK government floats Digital Services Tax plan, pointing way for an Australian online platforms levy

The UK government has announced in its 2018 Budget plans to introduce a Digital Services Tax, aimed at making the global tech giants pay their share of national taxes.

Britain’s move, which the UK Chancellor expects will raise over £400m per year once it is fully operational, comes as the Australian government mulls over the options for taxing the online giants and the ACCC continues its review of digital platforms.

Philip Hammond, UK Chancellor of the Exchequer, said the DST would ensure global tech giants paid their fair share of national taxes

Chancellor of the Exchequer, Philip Hammond, told Parliament: “It is only right that these global giants, with profitable businesses in the UK, pay their fair share towards supporting our public services.”

Explaining how the tax was proposed to work, Hammond said: “This will be a narrowly-targeted tax on the UK-generated revenues of specific digital platform business models.

“It will be carefully designed to ensure it is established tech giants – rather than our tech start-ups – that shoulder the burden of this new tax.”

Under the arrangement, a 2% tax will be levied on search engines, social media platforms and online marketplaces. The government was at pains to emphasise the levy would not be a general tax on advertising.

The DST will apply to ‘profitable’ enterprises with revenues of at least £500m globally with the first £25m of relevant UK revenues exempt to exclude small businesses.

In order to get around the tax avoidance tactics which multinationals have become notorious for – particularly US tech companies – the levy will be calculated on revenues raised from UK users.

According the UK Exchequer’s calculations, the tax is expected to raise £1,190bn over the next five years after its introduction in April 2020.

The UK government’s move comes a week after the former British deputy Prime Minister, Nick Clegg, was appointed as global head of communications at Facebook.

In its paper explaining the tax’s operation, The British government was at pains to emphasise it, like the Australian government, are committed to finding a global tax system for digital companies and saw the DST as an interim measure until an international solution is found.

Earlier this month, the Australian Treasury examined options for a Digital Services Tax and warned of “challenges in identifying and enforcing an interim measure on advertising directed at Australian users, in particular where it is paid for by a foreign business to a foreign advertiser.”

The Australian white paper went onto conclude: “Administration of an interim measure may be challenging. For example, it may be difficult to apportion a share of advertising published overseas and targeted at a global audience, but viewed by Australians.”

Like their Australian counterparts, the UK government wasn’t clear on the exact working of the DST, saying in its explanatory paper: “The government will be issuing a consultation on the design of the DST in the coming weeks.

“It intends to use this consultation to explore the key questions and challenges concerning the application of the DST, ensure it operates as intended and that it does not place unreasonable burdens on businesses,” the paper continued. “The DST will then be legislated for in the 2019/2020 Finance Bill, and apply from April 2020.”

Along with the prospect of a Digital Services Tax in Australia, the tech giants are facing the result of the ACCC’s Digital Platforms Inquiry and a Senate committee into the future of public interest journalism.

 

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