Spring Statement 2018 and the Digital Economy | KPMG | UK

Spring Statement 2018 and the Digital Economy

Spring Statement 2018 and the Digital Economy

The Chancellor has used his first Spring Statement to spring forward on addressing the challenges of taxing the digital economy, with a well thought out paper that asks the right questions.

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Spring Statement 2018 and the Digital Economy, Illustration of a laptop with spring flowers

The UK Government has published four papers concerning the taxation of the digital economy.  These comprise calls for evidence on the role of online platforms in the collection of tax and encouraging cashless and digital payments, a consultation on VAT split payment mechanisms and the centrepiece: an update paper on the Government’s current thinking around new rules for the taxation of the digital economy.    

The clear overriding message of the update paper is that the Government has a strong preference for coordinated, multilateral action in this space, and is waiting to see how the landscape evolves in the light of anticipated recommendations to be published at OECD and EC level over the coming weeks.  This is a positive stance, as multilateral action has been the clear preference of both UK and overseas businesses, as it reduces the instances of double taxation and the likelihood of cross-border disputes.  The Government is clearly listening to stakeholder input, and is attempting to take a role in shaping the outcome of the debate at an international level.  

There had been some suggestion that the recent reform of the US international tax code would obviate the need for new rules targeted at the digital economy.  However, the position paper makes it clear that this view is not favoured by the government, which sees the challenges of the digital economy as running deeper and meriting some form of bespoke action.  

The update paper sets out the Government’s view that there is inherent value in user participation that should be taxed, but which current rules do not adequately capture.  The paper approaches the question of user participation in a logical fashion, first seeking to define the concept, then mapping it to different categories of business models before attempting to allocate a valuation methodology.  

The Government has put down a marker that it will consider interim measures in the form of revenue-based taxes, but only if coordinated reform at the international level fails (and even then, the paper seems to imply that the government would prefer to coordinate with a critical mass of other like-minded countries, rather than moving alone).  The intention is that any interim measure would be appropriately targeted, and would include measures to protect start-ups, growth companies and loss-makers.  

Given the overtones in the previous consultation paper, there was concern that the UK would attempt to jump ahead of the OECD or EC and either introduce (or at the very least outline) the basics of a new unilateral digital tax.  This has not however happened at this time, and this is a stance that business will welcome, as it reflects a sensible and constructive approach to engaging with stakeholders and taking account of feedback.

The paper invites interested parties to submit comments on the issues and considerations it raises.  There appears to be no deadline in this regard, suggesting the government is intending to keep an open and ongoing dialogue pending further clarity around the direction of travel at OECD and EC level.  

With further updates from the OECD and EC expected to be published in the next few weeks, affected groups should be monitoring developments closely and considering putting in their own submission.  

Contacts:  Melissa Geiger and Matthew Herrington

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