Following agreement on the two-pillar approach to taxation of the digital economy, the UK has set out plans to withdraw its unilateral digital services tax (DST) and move towards the new global system.
In a joint statement with Austria, France, Italy, Spain and the United States, the Treasury has agreed that, as part of the agreement on pillar one, it will ‘withdraw all Unilateral Measures on all companies and refrain from imposing new Unilateral Measures’.
The joint statement represents a compromise, where the parties are not required to remove their unilateral measures immediately. Instead, the agreement sets out the following:
‘to the extent that taxes that accrue to the UK, Austria, France, Italy, Spain and with respect to existing unilateral measures during a defined period after political agreement is reached, and before Pillar 1 takes effect, exceed an amount equivalent to the tax due under Pillar 1 in the first full year of Pillar 1 implementation (prorated to achieve proportionality with the length of the Interim Period), such excess will be creditable against the portion of the corporate income tax liability associated with Amount A as computed under Pillar 1 in these countries, respectively.’
In essence, a DST-credit system will bridge the gap between the UK’s DST and the start of the new global system which is due to be implemented in 2023. When pillar one is in force, businesses will be able use the difference between what they have paid in DST from January 2022 and what they would have paid if pillar one had been in effect instead, as credit against their future corporation tax bill.
The agreement also ensures the US will not levy tariffs in response to DST.
Following agreement on the two-pillar approach to taxation of the digital economy, the UK has set out plans to withdraw its unilateral digital services tax (DST) and move towards the new global system.
In a joint statement with Austria, France, Italy, Spain and the United States, the Treasury has agreed that, as part of the agreement on pillar one, it will ‘withdraw all Unilateral Measures on all companies and refrain from imposing new Unilateral Measures’.
The joint statement represents a compromise, where the parties are not required to remove their unilateral measures immediately. Instead, the agreement sets out the following:
‘to the extent that taxes that accrue to the UK, Austria, France, Italy, Spain and with respect to existing unilateral measures during a defined period after political agreement is reached, and before Pillar 1 takes effect, exceed an amount equivalent to the tax due under Pillar 1 in the first full year of Pillar 1 implementation (prorated to achieve proportionality with the length of the Interim Period), such excess will be creditable against the portion of the corporate income tax liability associated with Amount A as computed under Pillar 1 in these countries, respectively.’
In essence, a DST-credit system will bridge the gap between the UK’s DST and the start of the new global system which is due to be implemented in 2023. When pillar one is in force, businesses will be able use the difference between what they have paid in DST from January 2022 and what they would have paid if pillar one had been in effect instead, as credit against their future corporation tax bill.
The agreement also ensures the US will not levy tariffs in response to DST.
