The UK government’s updated position paper on Corporate Tax and the Digital Economy builds on the paper published in November 2017, reflecting feedback from stakeholders and setting out in more detail the government’s preferred solutions to the challenges posed by the digital economy for the corporate tax system. The paper asserts that the current misalignment between where digital businesses are taxed and where they create value threatens to undermine the fairness, sustainability and public acceptability of the corporate tax system. As such, there is a need to ensure that the corporate tax rules respond to the modernisation of the economy and deliver appropriate results for digital businesses that generate value in unique ways.

The updated paper sets out the UK government’s view that:

  • the participation and engagement of users is an important aspect of value creation for certain digital business models, and is likely to be reflected through several channels, such as the provision of content or as a contribution to certain intangibles such as brand.
  • the preferred and most sustainable solution to this challenge is reform of the international corporate tax framework to reflect the value of user participation. It is important that the members of the OECD’s Inclusive Framework make progress in developing multilateral solutions, and to assist this process the paper sets out some of the government’s initial considerations on what this could include.
  • as set out at Autumn Budget, in the absence of such reform, there is a need to consider interim measures such as revenue-based taxes. The paper explores some of the important considerations regarding the scope and design of an interim measure, and the steps that could be taken to ensure that it is well-targeted and protects start-ups and growth companies. The government still thinks there are benefits to implementing an interim measure on a multilateral basis and it intends to work closely with the EU and international partners on this issue.

(Source: HM Treasury)

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