Skip links

UK fears OECD Pillar 1 delays will encourage Digital Services Tax avoidance

UK’s temporary 2% DST likely to remain beyond 2024 as global deal stalls; Parliament wary this will encourage aggressive tax planning

UK MP’s at the Public Accounts Committee (PAC) have been reviewing the UK’s temporary Digital Services Tax – a 2% turnover tax on search engines, social media services and online marketplaces which derive value from UK users.. This was implemented from April 2020 as an interim measure whilst almost 140 countries at the OECD negotiated a global settlement on the harmonised rules for taxing digital revenues.  However, it is likely to miss the global 2024 launch date, primarily because of US opposition.

DST’s, in the UK and other countries that have implemented, it are interim only. Meanwhile, almost 100 countries have now implemented VAT on foreign digital services.

But many new DST’s will come into force from 2024, such as Canada, if the OECD misses an agreement deadline. Last week, Aruba, became the latest state to announce a local DST.

Review our global DST implementations tracker. VATCalc’s global tax engine can track and live calculate DST’s or VAT on digital services in real-time. Contact us if you would like to learn more.

OECD Pillar One to miss 2024 implementation

Known as Pillar One, this has effectively missed a 1 January 2024 launch timetable. Pillar One will reallocate the taxing rights over the largest and most profitable multinational business groups from their home countries to the tax jurisdictions where their customers and users are located. It will be a tax on profits rather than a gross turnover tax like DST. It will also include online sales – which are outside of most DST’s.

The other reform, Pillar Two, will implement a global minimum corporate income tax rate and has made better progress.

UK DST revenues ahead of forecasts may encourage avoidance

This will mean the UK’s DST will be extended further. UK DST tax take of £358 million in 2020–21 from just 18 taxpayers.  This was 30% higher than projected.  The original forecast for 2025 revenues were £3 billion.  The tax, as a gross revenues charge, is crude and results in some double taxation since many businesses also pay Corporation Tax on the same revenues. Before then, the MP’s were anxious that HMRC develop a contingency plan for what happens if the Digital Services Tax needs to be extended, including a robust process for addressing non-cooperation with its compliance regime.

UK MP’s are therefore concerned that this may prompt businesses within the scope of the tax to consider using the huge resources and expertise at their disposal to circumvent the tax.  The UK’s HMRC is obliged to review the operation of its DST in 2025 if it hasn’t been superseded by agreement at the OECD.

The 2% DST is charegage where the provider receives more than £25 million per annum in the UK from UK users.

Europe Digital Services Taxes (DST)

Country Status Rate Annual sales threshold Scope
In-country income Global income
EU Digital Levy Paused 3% EU €50m €750m Marketplaces; advertising
Austria Jan 2020 5% €25m €750m Advertising
Belgium Paused 3% €5m €750m Advertising; Intermediation; Data Transmission
Czech Proposed 5% CZK 100m €750m Advertising; digital services
Denmark Jan 2024 2% Streaming video
France Jan 2019 3% €25m €750m Digital interface; advertising; user data
Greece Jul 2019 Nil n/a Tourist accomodation
Hungary Jul 2019 0% to Dec 2022; then 7.5% HUF 100m n/a Media content; Advertising
Italy Jan 2020 3% €5.5m €750m Advertising; digital interfaces; user data
Latvia Paused 3% €750m Digital interface; advertising; user data
Norway Paused Subject to progress on OECD plans
Poland Jul 2020 1.5% Streaming media and Audiovisual media service and audiovisual commercial communication
Poland 2 Proposed 7% Digital services
Portugal Feb 2021 1.5% Video-sharing platforms and subscription TV streaming (1%)
Portugal 2 Proposed 7% Streaming video services
Slovenia Proposed Advertising; user data
Spain Jan 2021 3% €3m €750m Advertising; user data
Turkey Mar 2020 7.5% TRY 20m €750m Advertising; Content; social media
UK Apr 2020 2% UK £25m £500m Marketplaces; Social media; search engines


Get our latest news right in your mailbox