The Chancellor surprised many by announcing in his Budget speech that the UK will press ahead with its own tax on digital services, rather than await consensus on a multilateral solution between OECD or G20 members.

The stated target is the “tech giants” who have a very large user base in the UK.

“Digital tech giants will be taxed at 2% on the money they make from UK users”, according to the Treasury announcement.

The tricky bit will be designing this tax, which the Chancellor says will catch the tech giants but not UK tech start-ups. 

The intended scope is the UK revenues of specific business models.  Both of those aspects may cause difficulties in practice. 

How should “UK revenues” be measured, for tech businesses that rely on UK users but are generally financed by advertising sales?  And can “specific business models” be described in a way which catches all of the intended targets without also drawing in some unintended businesses?

The government will be consulting on these types of questions ahead of a planned implementation date of April 2020.

The information available at Budget suggests that the tax will apply to profitable companies only, and only to those which have £500m+ of global revenue on in-scope activities.

Perhaps the most surprising feature of this announcement is the projected tax take.  Total corporation tax receipts for the 2017/18 tax year are estimated at £55bn.  By comparison, the new digital services tax is a drop in the ocean, projected to raise £400m each year.