UK to end digital services tax on US tech giants once global tax reform takes effect
In return, the US will remove the threat of retaliatory tariffs against Britain
The UK has agreed to phase out its digital services tax (DST) on US tech giants such as Amazon, Facebook and Google once a global reform to corporation taxation takes effect in 2023.
The Treasury stated on Thursday that a deal between the two countries means the United States will not now levy retaliatory tariffs against the UK for imposing the DST.
"We have agreed a way forward on how we transition from our Digital Services Tax to the newly agreed global tax system," chancellor Rishi Sunak said in a statement.
"This agreement means that our Digital Services Tax is protected as we move to 2023, so its revenue can continue to fund vital public services," he added.
The UK, US, France, Italy, Austria and Spain all reached an agreement this week on moving away from national DSTs to a new global tax deal.
The Treasury said that a new DST-credit system will bridge the gap between the UK's DST and the start of the new global tax system, which is expected to come into effect in 2023.
The deal was reached after 136 countries agreed this month to set a global minimum corporate tax rate of 15 per cent on multinational firms.
The rules will apply to global companies with at least a 10 per cent profit margin, and will see 25 per cent of any profit above the 10 per cent margin reallocated and then subjected to tax in the countries they operate.
The changes will ensure that big multinational firms, specifically digital platforms, pay taxes in the countries where they operate and not only where they have headquarters.
Earlier in June, G7 member countries also agreed on the outline of the global corporate tax agreement, with the aim of deterring multinational firms from avoiding taxes by filing their profits in low-tax-rate countries, such as Ireland and Luxembourg.
In June, the Fair Tax Foundation said that the biggest US tech firms paid almost $100 billion less in taxes over the past decade than stated in their annual reports.
According to the campaign group, the 'Silicon Six' (Amazon, Apple, Facebook, Microsoft, Netflix and Google's owner Alphabet) paid nearly $219 billion in income taxes from 2011 to 2020: about 3.6 per cent of their more than $6 trillion in combined revenue. The report named Amazon and Facebook as the worst offenders in terms of tax avoidance. The researchers claimed that Amazon paid $5.9 billion in taxes between 2011 and 2020, on reported profit of $60.5 billion and revenues of $1.6 trillion.
The UK's DST was introduced in April 2020, and it charges 2 per cent on the gross revenues of the social media companies, search engines and online marketplaces. It netted the Treasury £300 million in the 2020/21 financial year, and was forecast to raise more than £2 billion over the next few years.
The Treasury said on Thursday that the UK will keep the revenue raised under the DST until the new system, known as "Pillar One", comes into effect.
Once that happens, companies will be allowed to claim back - as credit against future bills - any difference between the tax they paid under the DST and what they would have paid under the new system, effective from January 2022.
"The credit system provides a fair and sustainable solution," the Treasury said.
Discussions are set to continue in the coming months as world leaders work out how to implement the new tax system.