Digital Services Tax – will it ever be the right time to tax big tech?

Niamh Mercer

Earlier this month, the Government introduced the highly anticipated Digital Services Tax (DST) in a move to get big tech companies to pay their fair share of tax on profits made in the UK. Whilst much of the public has been keen to see action on tech giants, the DST’s introduction has been met with some pushback from the tech industry, who believe that launching such a big piece of regulation during a time of unprecedented international crisis is objectionable. Yet, in an age of such rapid technological advancement and change, and given the reluctance of social media giants to strongly self-regulate, will there ever be an ideal time to tax big tech?

The idea of the DST was first introduced in 2018 by then Chancellor Philip Hammond and has since been carried forward by his successors. Under the new tax, search engines, social media platforms and online marketplaces that make revenue from users in the UK will be subject to a 2% tax on their revenues. However, to be liable to pay the DST organisations must be profitable with revenue generated over £500 million, and more than £25 million of this has to come from UK users. This means that only the largest tech companies, such as Google, Facebook and Amazon, will be taxed.

Other countries across Europe have discussed introducing their own versions of a DST, but these have now been put on hold following the Organisation for Economic Co-operation and Development (OECD)’s request for individual nations to pause on their efforts until the end of the year to give the OECD time to produce a global agreement. They argue that the risk of multiple countries having various different regulations would be limiting and unsustainable. Tech companies were notably in favour of this request by the OECD, as it would mean they would not have to navigate multiple versions of the tax across Europe, but also, they welcome any further delays on any tax whatsoever.

In addition to the request from the OECD, the UK has also faced pressure from the US to delay the introduction of the DST – many of the companies that would qualify to pay under the new regulation would be American. US Treasury Secretary, Steve Mnuchin, threatened new tariffs on UK carmakers as a result of the UK’s perceived defiance on this issue at the World Economic Forum in Davos earlier this year, but the Government held firm on its commitment to progress the DST in April as planned.

Yet, the Government’s bold commitment to progressing the tax in the face of political pressure did not and could not have factored in the situation the global economy would be in when the time came to roll out the regulation. Many commentators in the tech sector were surprised to see the DST go ahead as planned this month, given that businesses and livelihoods across the world are currently in jeopardy. It is arguably an insensitive time to introduce a brand-new financial burden whilst the global economy is so volatile.

For example, Just Eat is one of the only British tech companies tipped to qualify for the tax, and it is currently providing a lifeline to independent restaurants still able to safely stay open for takeaway and deliveries. The move to press ahead with the DST therefore seemed inconsiderate to some given the positive work tech may be able to do throughout this crisis.

Part of the Government’s rationale behind progressing with the introduction of the DST is that none of the qualifying companies will have to pay anything until 2021, after the end of this financial year. This still comes as little consolation for many, as the economic effects of the coronavirus pandemic will not fully come to light for many months or maybe even years to come, and there is no telling what company finances will look like in 12 months and beyond.

However, even before the devastating outbreak of coronavirus across the world, there was clear pushback on introducing a tax such as the DST, so – would it ever be the right time to introduce a tax on big tech in the eyes of the industry? Even if we look beyond the coronavirus pandemic, it is likely that the tech industry would have continued to defer to the OECD’s request for the UK to hold off and seek a more global solution, which in turn could be scrutinised and appealed once it is eventually laid out.

But the Government hopes that the limited number of companies that will be affected will be big enough and profitable enough to survive the choppy waters we find ourselves in. The UK government has also noted that it would consider scrapping the tax if a reform of the international corporate tax rules by G7, G20 or OECD was to take place.

Whatever happens in the future of big tech tax regulation, in such unprecedented times for the global economy and with a potential international tax agreement on the horizon, it remains to be seen whether the Government’s bold tech tax move will pay off – both in terms of revenue generated and the court of public opinion.

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