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  • ARTICLE - UK

    Digital Services Tax – UK May Ease Pressure on US Tech Firms

    29 Mar
    Written by a native

    Digital Services Tax – Introduction

    The UK government is exploring ways to reduce the burden of its digital services tax (DST) on American tech giants as part of broader trade discussions with the United States.

    The move comes amid rising international pressure and a growing consensus that digital taxation should be handled multilaterally through the OECD framework.

    What Is the Digital Services Tax?

    The UK’s DST, introduced in 2020, imposes a 2% levy on the revenues of large digital businesses that earn money from UK users.

    This includes revenues from search engines, social media platforms, and online marketplaces.

    The tax applies to companies with global revenues over £500 million and at least £25 million of UK-derived revenue.

    Why the Shift in Tone?

    Recent reports suggest the UK is considering adjustments or possible early withdrawal of the DST to avoid escalating tensions with the US, which has long criticised the tax as unfairly targeting American firms.

    The US has threatened retaliatory tariffs against UK exports if the DST remains in place beyond the implementation of the OECD’s global tax framework.

    As trade talks progress, the UK may offer concessions to secure a broader deal.

    The OECD Agreement

    Under the OECD’s two-pillar agreement, countries that have introduced unilateral digital taxes are expected to remove them once Pillar One (which reallocates taxing rights over digital profits) is implemented.

    The UK has committed to this, but with the global deal’s timeline uncertain, there’s growing pressure to act sooner.

    Domestic Reactions

    Domestically, opinions are split.

    Some MPs and economists argue that the DST is necessary to ensure tech giants pay their ‘fair share’, especially during times of economic strain.

    Others argue that it’s a temporary fix and should be removed in favour of multilateral rules that apply consistently across jurisdictions.

    What’s Next?

    Any softening of the DST is likely to be politically controversial.

    However, it may help the UK achieve its long-term goal of securing a comprehensive trade agreement with the US – and could also pre-empt future disputes if Pillar One implementation drags.

    Digital Services Tax – Conclusion

    The UK’s digital services tax has always been a stopgap measure.

    With global reforms on the horizon and trade talks with the US intensifying, its days may be numbered – either replaced by multilateral rules or scrapped to preserve trade harmony.

    Final thoughts

    If you have any queries about this article on digital tax, or tax matters in the United Kingdom then please get in touch.

    Alternatively, if you are a tax adviser in the United Kingdom and would be interested in sharing your knowledge and becoming a tax native, then there is more information on membership here.

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