United Kingdom Plans Digital Tax in 2020

The United Kingdom is moving on its own to introduce a tax on digital services businesses beginning in April of 2020, having tired of waiting for solutions to emerge from ongoing discussions at the OECD.

The proposed tax would be 2% on digital business models that are profitable and generate at least 500 million pounds in global revenue. The first 25 million pounds in U.K. revenues would not be taxable. The tax would apply to specific digital business models, including search engines, social media platforms, and online marketplaces that are directly linked to U.K. user participation.  

The proposed tax is somewhat different than a digital tax proposed by the EU, which would be 3% on companies with annual turnover greater than 750 million euros and annual revenue from EU digital activities exceeding 50 million euros.  

Other countries are walking a similar path. For example, Spain announced on 4 October 2018 that it would explore imposing a 3% tax like the EU on companies with 750 million euros of turnover, and with Spanish sales exceeding 3 million euros.

Similarly, Australia published a consultation paper on 2 October 2018, seeking comment and advice on imposing a tax on digital businesses. The paper does not propose details of a tax, but does suggest that Australia might decide to go it alone if other international efforts do not move quickly.

And as Worldwide ERC® reported in April, Canada’s House of Commons Standing Committee on Trade is recommending that Canada apply sales taxes to digital products sold in Canada through e-commerce.  

The United Nations is also working on proposals for taxing the digital economy. It is preparing a questionnaire for its members and other stakeholders and drafting a report that will form the basis for future recommendations and action.  

As for the EU, it remains divided over the imposition of a digital tax. At a meeting of finance ministers in Vienna on 8 September 2018, a number of countries including Ireland, Denmark, Finland, Malta, and Sweden expressed opposition, while Germany remains “concerned.” Discussions centered on including a “sunset clause” in the EU tax so that the EU version of such a tax would end once the OECD completes its own recommendations.  

As yet all these proposed taxes would affect a limited number of large digital companies, but it is expected that eventually digital commerce engaged in by smaller players will also be subject to tax.

Related: Denmark Overhauls Maligned Tax Administration

Worldwide ERC® members engaged in digital commerce could face additional taxes, and additional difficulties in allocating revenues to different countries, in the relatively near future.