In its latest report, the Public Accounts Committee encourages the government and HMRC to prepare for the implications of extending the UK’s digital service tax (DST), given the likelihood of delayed implementation of the Pillar One reforms.
Although DST brought in more tax than had been expected in its first year of operation (£358m in 2020/21) the committee cautions that, should the tax need to be extended beyond 2024 (on the basis that the Pillar One schedule slips further), businesses within the scope of DST may start to pay closer attention to their exposure to the tax. The report notes that, while there seems to be no evidence of active tax avoidance or evasion, this may change if the life of DST is extended, pointing out an inherent practical difficulty for HMRC: ‘Methods for ensuring compliance are untested and could require cooperation between countries.’
The committee suggests that, ahead of the statutory formal review of DST in 2025, HMRC should develop a contingency plan for potential extension ‘including a robust process for addressing non-cooperation with its compliance regime’.
Sarah Olney MP, lead member for the PAC review, said: ‘We were very pleased to see HMRC finally getting to grips with the realities of taxing multinational corporations, after years of PAC recommendations on this. But the Revenue needs to up its game on compliance – especially across jurisdictions – about how the tax will actually operate, over what will likely be years more before a proper international tax is fully operational.’
In its latest report, the Public Accounts Committee encourages the government and HMRC to prepare for the implications of extending the UK’s digital service tax (DST), given the likelihood of delayed implementation of the Pillar One reforms.
Although DST brought in more tax than had been expected in its first year of operation (£358m in 2020/21) the committee cautions that, should the tax need to be extended beyond 2024 (on the basis that the Pillar One schedule slips further), businesses within the scope of DST may start to pay closer attention to their exposure to the tax. The report notes that, while there seems to be no evidence of active tax avoidance or evasion, this may change if the life of DST is extended, pointing out an inherent practical difficulty for HMRC: ‘Methods for ensuring compliance are untested and could require cooperation between countries.’
The committee suggests that, ahead of the statutory formal review of DST in 2025, HMRC should develop a contingency plan for potential extension ‘including a robust process for addressing non-cooperation with its compliance regime’.
Sarah Olney MP, lead member for the PAC review, said: ‘We were very pleased to see HMRC finally getting to grips with the realities of taxing multinational corporations, after years of PAC recommendations on this. But the Revenue needs to up its game on compliance – especially across jurisdictions – about how the tax will actually operate, over what will likely be years more before a proper international tax is fully operational.’
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