At the time of the Autumn Budget 2017, the Government published a position paper entitled “Corporate tax and the digital economy”. The paper sets out proposals to ensure that the UK tax obligations of digital businesses “are commensurate with the value that they generate from the UK market”. These include reforms of the international tax framework to recognize the value created by users of digital businesses; an “interim option” to raise revenue from digital businesses through a tax on revenues generated from UK users; and the extensions to UK withholding taxes on IP related payments which were the subject of a further paper in early December 2017. It is the interim option that takes up much of the commentary. Comments are requested by tomorrow (31 January 2018) to inform the Government’s submissions to the OECD Task Force of the Digital Economy.

It’s an odd paper, full of contradictions such as: expressing support for the existing international tax framework and yet containing proposals which potentially undermine it; and espousing the view that none of the issues addressed in the report are specific to the digital economy, but advocating measures targeted solely at digital businesses. At various points in the paper, the Government also reiterates its support for growth in the UK tech sector. Although clearly targeted at US tech giants doing business in the UK, it is difficult to believe that these measures will do anything but harm to the UK tech sector. We know from the experience of DPT that this type of unilateral measure - taxing digital business by reference to user participation in the UK – is only likely to prompt similar measures in other countries. In this case, that would lead to UK tech companies facing tax charges and compliance costs in other jurisdictions in which they have no physical presence and, of course, the risk of double taxation if relief for such costs is not extended in the UK.