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KPMG: UK's digital tax puts pressure on OECD to take global action

Mar 17
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KPMG: UK's digital tax puts pressure on OECD to take global...

All eyes are now on the Organisation for Economic Cooperation and Development (OECD) to come up with an international accord on taxing the digital economy, after the UK took unilateral action to introduce a digital services tax (DST).

That's according to KPMG, which noted that the UK's DST - announced in the Budget on March 11th - will come into effect from April 1st 2020.

The new tax will apply to businesses including search engines, online marketplaces and social media platforms, meaning it will have an impact on some of the world's most influential brands, like Google, Amazon and Facebook. It will be levied at a rate of 2% on these companies' revenues.

Some £2 billion is set to be raised by the tax in the coming years, but the government has committed to repealing it once authorities around the world have come to an international agreement on digital taxation.

Matthew Herrington, international tax partner at KPMG in the UK, said businesses that will be affected by DST will now be focusing on how quickly the OECD can reach a consensus on its "ongoing work on the reallocation of taxing rights".

He added: "The Budget also made it clear that the government will continue to give consideration to how the legislation applies to marketplace delivery fees, with a view to ensuring that the new tax applies in accordance with its underlying policy rationale."

Mr Herrington also noted that it "remains to be seen" whether the new tax will be at the centre of discussions between the UK and the US on a post-Brexit trade deal between the countries.

Budget headlines for businesses

The 2020-21 Budget included a number of significant announcements for businesses, many of which related to the coronavirus outbreak and the impact it's expected to have on commercial operations in the UK.

Key measures included:

  • The abolition of business rates in England for companies in the retail, leisure and hospitality sectors with a rateable value below £51,000
  • 'Business interruption' loans of up to £1.2 million for small firms
  • Sick pay refunds for two weeks for companies with fewer than 250 staff
  • £3,000 cash grants for firms eligible for small business rates relief
  • Additional funding of £900 million for research into nuclear fusion, space and electric vehicles

The Budget came just a few hours after the Bank of England announced an emergency cut in interest rates to lower the cost of borrowing and get more credit flowing into the economy.

Discussing the announcements, Karim Haji, head of financial services at KPMG UK, said "bold measures" are required to handle the economic shocks being created by the coronavirus outbreak.

"The Bank of England's package of measures, combined with the chancellor's tax breaks and investment commitments, are a welcome opening salvo that shows a determination to manage threats to the economy, but much more may be needed over time," he added.

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