Chancellor calls for global action on digital services tax

Chancellor Philip Hammond is to use today’s meeting of G20 finance ministers and central bank governors in Fukuoka, Japan to underline the need to update global tax rules to reflect the digital world as multinationals operate crossborder and base themselves in low-tax jurisdictions 

Hammond’s speech will emphasise that the digital revolution has transformed business, but the international corporate tax system is outdated. He will also warn that a global approach needs to be agreed to tackle the way tech multinationals are taxed, because change is too slow.

Hammond said: ‘In Japan, I will further strengthen our successful economic relationship by showcasing how we’re embracing the new economy and champion our world-class expertise in tackling the challenges posed by the digital revolution.

‘I will also meet with my G20 counterparts to reaffirm the need for global reform of the international corporate tax framework, to ensure it is fit for the future.’

The Chancellor set out details in last year’s Budget for a digital services tax, to be levied on the revenues of certain online business models. However, he made clear at the time that an international agreement would be the best solution to ensure that digital platform businesses that generate substantial value in the UK pay their fair share of tax.

Alongside Japanese, Chinese, French, and American counterparts, the Chancellor will reaffirm the UK’s commitment to reaching an international agreement on reforms to the international corporate tax framework for digital businesses. 

The UK has already taken a unilateral approach in attempts to force multinationals operating and selling in the UK with the introduction of the diverted profits tax and it is currently considering the introduction of a digital services tax, announced at Budget 2018.

Last week, the OECD set a timetable to develop a global framework for the digital taxation of multinationals with 2020 set as a deadline to finalise the rules, which are likely to include a wider remit than just digital tax to capture intangibles and intellectual property. 

The decision was taken at a plenary meeting of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) and followed in-depth field work and research into the current taxation of multinationals who operate cross-border and increasingly shift profits between tax jurisdictions. The decision was approved by delegates from 99 member countries and jurisdictions.

The European Commission is also considering an EU-wide digital tax, while Austria and Poland have had preliminary discussions about changes to their domestic tax systems, again taking a unilateral approach.

Pat Sweet, Sara White

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