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The coming of the digital tax age

The coming of the digital tax age

Darren Anton of KPMG considers the UK 2018 Budget from a Gibraltar perspective

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Associate Director: Tax

KPMG in Gibraltar

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Christmas seems to get earlier every year and Philip Hammond’s 2018 UK Budget certainly had a festive feel to it. From April 2019, UK personal allowances (the amount you can earn without paying tax) will increase to £12,500 and the 20% tax bracket will increase by 7.87% to £50,000, thereby fulfilling the UK Government’s election pledge a year early.

Remote Gaming Duty, introduced in 2014 in the UK, will be increased from 15% to 21% to cover the potential impact to public finances following the reduction of the maximum stakes on Fixed Odds Betting Terminals. This will apply for accounting periods that begin on or after 1 October 2019 and affect all remote gambling operators with UK customers. Therefore, this will represent a significant increase in the cost of doing business in the UK market, which would impact the online gaming sector in Gibraltar but by the UK Government announcing this now they hope to have given sufficient advance warning (although a rise was already widely expected).

One of the Chancellor’s more interesting proposals was the introduction of a Digital Services Tax (DST) from 2020, at 2% on UK-derived revenues of search engines, social media platforms and online market places. The DST is not intended to apply to online sales of goods per se. It will only apply to businesses with a global annual turnover of at least £500m, with £25m of UK revenues.

The proposed introduction of DST is a reflection of the UK Government’s frustration with the pace of change within the wider international tax community. Details of this proposal are yet to be agreed: the UK Government will issue a consultation document shortly.

Whilst I am not wholly convinced of the argument that an overseas business should pay tax in the UK simply because it has customers there (tax traditionalists have always drawn a distinction between doing business in a jurisdiction and doing business with it), I suspect that the overwhelming majority of people are of the view that the digital giants should now be made to contribute tax in a big way. As such, this proposal will no doubt have popular support.

Many digital businesses are based in locations all over the world including Gibraltar. A 2% levy on UK sales may not yet make their operating model uneconomic but one suspects that the DST will gradually increase over time and at some stage cause digital businesses to rethink their strategies, including where they are located. Ends

© 2018 KPMG Limited, a Gibraltar Limited Liability Company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

KPMG International Cooperative (“KPMG International”) is a Swiss entity.  Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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