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Over the last few years there has been a growing consensus among policy makers, academics and businesses that the international tax system has been outpaced by globalisation and the growth and scale of multinational enterprises (MNEs). Since the financial crash in 2008 there has also been widespread public concern as to the scale of corporate tax avoidance that has been facilitated by these trends.

The OECD has co-ordinated efforts to reform the international tax rules through the ‘Base Erosion and Profit Shifting’ initiative, or ‘BEPS’ as it is known. In 2015 G20 Finance Ministers agreed a series of recommendations for setting minimum standards in national tax systems, revising international standards for the way those systems interlock, and promoting best practices. In turn the Government has introduced a series of reforms to the UK tax system in line with the BEPS initiative, as well as taking unilateral action to mitigate the risk of tax avoidance by MNEs.

There is widespread agreement that these reforms, while significant, have not met the challenges posed by digitalisation and the emergence of major tech companies. In the Autumn 2017 Budget the Government published a position paper in which it set out its approach for addressing this issue – supporting a second OECD-led initiative for an international agreement on taxing MNEs, while exploring the option for a new tax on the UK-generated revenues of specific digital platform business models.[1]

In the 2018 Budget the then Chancellor Philip Hammond confirmed that the Government would introduce the Digital Services Tax (DST) from April 2020, given the lack of progress toward an international agreement.[2] The Government launched a consultation exercise on the design of the DST, and in July 2019 confirmed that it would include statutory provision in the next Finance Bill to be introduced after the 2019 Budget.[3] During this period a number of other countries announced similar plans for digital services taxes.[4]

Although the Budget was initially anticipated in November 2019, it was postponed due to the timing of the 2019 General Election.  In the event the Chancellor Rishi Sunak presented his Budget on 11 March 2020.[5] The Chancellor did not mention the DST in his Budget speech, but the Budget report confirmed that provision to introduce the DST from 1 April 2020 would be included in the forthcoming Finance Bill.[6]

The Government has said it would disapply the DST if an appropriate global solution was successfully agreed and implemented, and this remains its position.[7] The Government has estimated that, if implemented, the UK’s DST could raise over £400m a year by 2021/22,[8] although there has been some question as to how reliable these estimates can be. At the time of the 2018 Budget the OBR’s assessment was that the Treasury’s approach to estimating the yield from this measure was “reasonable and central, but there is a high degree of uncertainty around the central estimates of the yield.”[9]

In June 2019 G20 Finance Ministers agreed proposals drawn up by the OECD to find a consensus-based solution by the end of 2020.[10]  In October and November the OECD launched a two-part consultation: first, proposals for determining where tax should be paid and on what basis (‘nexus’), as well as what portion of profits could or should be taxed in the jurisdictions where clients or users are located (‘profit allocation’);11] and, second, a proposal for a ‘global minimum corporate tax level’.[12]

Reaching consensus proved difficult with a strong division of opinion between the United States and other countries, as to whether there should be a voluntary component to any new international rules,[13] and over the prospect of individual digital service taxes being introduced prior to any agreement being reached.[14] In January 2020 participant countries, members of the OECD’s ‘Inclusive Framework’, confirmed they were working to reach a “consensus-based long-term solution …  working toward an agreement by the end of 2020”[15] although there was some scepticism as to whether this timeframe was achievable.[16]

In June 2020 the then US Treasury Secretary Steven Mnuchin argued that the work should be paused in the context of the Covid-19 pandemic, while reaffirming the Administration’s opposition to DSTs.16F16F[17] Nevertheless, in October 2020 the OECD published details of its ongoing work: participant countries confirmed that the ‘two-pillar’ approach provided a “solid foundation for a future agreement” that was set for mid-2021.[18] Many commentators noted the considerable obstacles to achieving an agreement,[19] in part because, even with the new Biden administration, the US Congress was unlikely to see any required changes to the US tax system as a legislative priority.[20]

Recently the prospects for reform have changed with the announcement by US Treasury Secretary Janet Yellen in April 2021 that the Biden administration were working with the G20 to agree a global minimum corporate tax rate.[21]  Initially the US Treasury Department proposed a minimum 21% rate, revising this to 15% some weeks later,[22] although the US also confirmed its plans to impose tariffs on certain countries with DSTs in place, including the UK.[23] The principle of a 15% minimum rate was endorsed by G7 Finance Ministers at a meeting on 4-5 June – as well as “an equitable solution on the allocation of taxing rights, with market countries awarded taxing rights on at least 20% of profit exceeding a 10% margin for the largest and most profitable multinational enterprises.”[24]

The agreement widely reported as a major breakthrough,[25] although many commentators noted that the G7’s communique was short of many details.[26] Moreover, from a domestic perspective, it is infeasible to say at this stage what the impact might be for UK tax revenues, in part because, as the G7’s statement makes clear, any deal is predicated on the removal of all DSTs. [27] On 1 July the OECD announced a new agreement signed by 130 of the 139 countries and jurisdictions of the OECD Inclusive Framework, setting October 2021 as a deadline for finalising the remaining technical work on the two-pillar approach, as well as a plan for effective implementation in 2023.[28]


[1]   HM Treasury, Corporate tax and the digital economy: position paper, November 2017

[2]   HC Deb 29 October 2018 cc661-2; HMT, Digital Services Tax: Budget 2018 brief, 29 October 2018

[3]   HMRC, Introduction of the new Digital Services Tax: tax information & impact note, 11 July 2019

[4]   PQ236554, 28 March 2019. For an overview of international developments see, KPMG, Taxation of the Digitized Economy, June 2021.

[5]   HC Deb 11 March 2020 cc278-293

[6] HMT, Overview of Tax Legislation & Rates, March 2020 para 1.16. Provision to this effect is now included in the Finance Act 2020 (specifically sections 39-72 of the Act).

[7]   Budget 2020, HC 121, March 2020 para 2.205. see also, PQ61662, 24 June 2020; HC Deb 15 September 2020 cc179-180; PQ96879, 7 October 2020; PQ181360, 22 April 2021.

[8]   The annual yield from the DST is estimated to be: £70m (2019/20); £280m (2020/21); £390m (2021/22); £425m (2022/23); £465m (2023/24); £515m (2024/25): see, HMRC, Digital Services Tax, 11 March 2020.

[9] OBR, Economic & Fiscal Outlook, Cm 9713, October 2018 para A9-14

[10] G20 press notice, Communiqué,G20 Finance Ministers & Central bank Governors Meeting, 8-9 June 2019. See also, OECD, BEPS Action 1 : Tax Challenges Arising from Digitalisation, ret’d June 2021.

[11] OECD press notice, OECD leading multilateral efforts to address tax challenges from digitalisation of the economy, 9 October 2019

[12] OCED press notice, OECD secretariat invites public input on the Global Anti-Base Erosion (GloBE) Proposal under Pillar Two, 8 November 2019

[13] “Brussels steps up pressure on US over global digital tax deal”, Financial Times, 5 December 2019

[14] “UK to push on with digital tax in face of US anger”, & “Editorial: International agreement on digital taxes is needed”, Financial Times, 21 January & 23 January 2020

[15] OECD press notice, International community renews commitment to multilateral efforts to address tax challenges from digitalisation of the economy, 31 January 2020

[16] see, for example, Clifford Chance, The OECD proposal to rewrite the rules of worldwide taxation: Our take on what it means, and whether it will happen, 6 February 2020

[17] “US upends global digital tax plans after pulling out of talks”, Financial Times, 17 June 2020

[18] OECD press notice, International community renews commitment to address tax challenges from digitalisation of the economy, 12 October 2020

[19] “OECD drafts principles for $100bn global corporate tax revolution”, Financial Times, 12 October 2020

[20] “DST will struggle to clear US congressional hurdles”, Financial Times, 17 February 2021

[21] US Department of the Treasury, Remarks by Secretary of the Treasury Janet L. Yellen on International Priorities to The Chicago Council on Global Affairs, 5 April 2021

[22] “A grand bargain: how the radical US corporate tax plan would work” & “US proposes global corporate tax rate of at least 15% in international talks”, Financial Times, 8 April & 21 May 2021

[23] Office of the US Trade Representative press notice, USTR Announces, and Immediately Suspends, Tariffs in Section 301 Digital Services Taxes Investigations, 2 June 2021; “US wields $2bn tariff threat against 6 nations over digital taxes”, Financial Times, 2 June 2021

[24] HMT press notice, G7 Finance Ministers Agree Historic Global Tax Agreement, 5 June 2021; HMT, G7 Finance Ministers and Central Bank Governors Communiqué, 5 June 2021

[25] For example, “Editorial: G7 tax accord is a game-changing opportunity”, Financial Times, 6 June 2021

[26] “Dealbook: A pact to tax the world”, New York Times, 7 June 2021; “The road is long for pillars one and two”, Tax Journal, 10 June 2021

[27] “Q&A: The scale of UK gains from the G7 tax deal remains uncertain”, Financial Times, 7 June 2021

[28] OECD press notice, 130 countries and jurisdictions join bold new framework for international tax reform, 1 July 2021; “World’s leading economies agree global minimum corporate tax rate”, Financial Times, 1 July 2021.

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