Wednesday 11 March 2020 3:06 pm

Budget 2020: Chancellor introduces digital services tax

Chancellor Rishi Sunak today confirmed the introduction of a digital services tax as the government looks to ensure tech giants pay their fair share of tax.

The new tax, which will come into force from 1 April, will charge two per cent levy on sales for certain digital businesses. The move is set to raise £500m per year.

“This will ensure the amount of tax paid in the UK reflects the value these businesses derive from their interactions with, and the contributions of, an active user base,” the government said.

However, the issue of tech taxes has proved controversial across the pond, with US President Donald Trump arguing the measures unfairly targeted American companies.

The Trump administration has threatened France with extra tax duties on imports in response to a similar levy, forcing the country to delay the introduction of the new measure.

The White House has also warned the UK that a new tax could scupper chances of a transatlantic trade deal. But former chancellor Sajid Javid had vowed to press ahead with the tax despite the risks of repercussions.

Arun Birla, tax partner at law firm Paul Hastings, said: “The implementation of the digital services tax will not be easy, and there are a number of issues that need attention, especially since the majority of businesses are becoming digital.”

The OECD, which is tasked with brokering a global compromise on tech tax, has urged the UK to “hold fire” on bringing in new measures.

Secretary general Angel Gurria warned there was risk of a “cacophony and a mess” if a worldwide agreement is not reached.

Birla said a global approach was needed to ensure nations did not implement multiple versions of the same legislation. “That said, setting up a global policy is no mean feat, and will only be achieved if all countries have the desire to do so,” he said.

The government today said it remained committed to developing a multilateral solution and would repeal the digital services tax “once an appropriate global solution is in place”.

It added that it would continue to consult on how the legislation will apply to marketplace delivery fees charged by firms such as Amazon and Ebay.

Zubin Patel, international tax partner at Deloitte, said the chancellor had “sent a message to the international community” that he was not ready to wait for international wranglings.

But he warned digital businesses currently unaffected by the measures could be worried they will drift into the rules as they build their brands online.

“There is a risk that the measure could result in a short-term squeeze in investment and growth among the UK digital sector,” he said.