France and the UK are the first European countries to commit to implementing a Digital Services Tax (DST) on international online businesses.
Why a new tax?
As we have previously reported, truly global corporations can legally pick and choose which country houses their company headquarters and, therefore, where sales are processed. This means they can always use the most beneficial tax system, like Ireland’s, and pay the least amount of corporation tax possible.
If you are doing business in any country, you should be paying your fair proportion of corporation tax. The new Digital Services Tax is a way to rectify the current unfair avoidance by internet giants.
Collective Europe wide proposals by the OECD are not going far enough or moving fast enough for France and Britain. So both countries are implementing their own DST.
How much is the DST in each country?
The UK’s DST proposals formed part of the 2018 Budget and suggest a 2% tax on turnover from ecommerce, (eBay and Amazon) social media platforms, (Facebook) and search engines (Google). This will come into effect in 2020, if a prior agreement is not reached.
The tax will only be on companies that have £25m UK revenue and £500m global revenue. It is expected to raise £275m for our national coffers in its first year alone.
When he outlined these plans, Chancellor Philip Hammond said: “The UK has been leading attempts to deliver international corporate tax reform for the digital age. A new global agreement is the best long-term solution. But progress is painfully slow. We cannot simply talk forever. So we will now introduce a UK digital services tax. It is only right that these global giants, with profitable businesses in the UK, pay their fair share towards supporting our public services.”
France have decided to tax the revenue of huge internet companies an additional 3%. This will only apply to around 30 businesses, including the all-pervasive Facebook, Google and Amazon. They estimate that this will bring in an extra 50 million euros. The French Senate has given their approval on these proposals. Businesses with global revenue of €750m, with €25m coming from sales in France, will be liable for their DST.
What are other countries doing about the same problem?
Denmark, Finland, Ireland and Sweden are all against the idea of having a DST in their own countries. Whereas Austria, Italy and Spain are currently looking at their own versions.
America seems to be taking France and Britain’s DSTs as a personal attack. Yes, there are some well-known companies that will be affected by both the French and UK DST. But it is not an exclusively American list, there are European and Chinese businesses that will also be obliged to pay the new tax.
As reported by the BBC, President Trump has already launched an investigation into France’s DST in order to establish “whether it is discriminatory or unreasonable and burdens or restricts United States commerce”.
We can only assume that his attitude will be the same towards the British DST, once it comes into force. The delicate diplomatic situation and continuing post-Brexit trade preparations inevitably put pressure on the timing of this.