On November 22, 2017 the UK Government opened a public consultation on a position paper on corporate tax and the digital economy. The position paper describes how the UK Government thinks it can best achieve that it is ensured 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 consultation will run until January 31, 2018.

The position paper sets out how the government intends to achieve this:

a)   The government will push for reforms to the international tax framework, to ensure that the value created by the participation of users in certain digital businesses is recognised in determining where those businesses' profits are subject to tax;

b)   Pending reform of the international framework, the government will explore interim options to raise revenue from digital businesses that generate value from UK users, such as a tax on revenues that these businesses derive from the UK market. The UK will work with other countries to consider how such a tax could be targeted, designed and co-ordinated to minimise business burdens and distortion. However, the government stands ready to take unilateral action in the absence of sufficient progress on multilateral solutions;

c)   The government will take more immediate action against multinational groups, primarily in the digital sector, who achieve low-tax outcomes by holding their valuable intangible assets such as intellectual property in low-tax countries where they have limited economic substance. This action, which is taken in accordance with the UK’s international treaty obligations, will help to prevent groups achieving unfair competitive advantages in the UK market in which they operate. It will also help to ensure that the discussion on how value is created by the users of certain digital businesses starts from a more sustainable position.

A.o. the following topics are discussed in the position paper:

·   The international tax framework

·   Challenges to the current framework

o  Continued risk of Base Erosion and Profit Shifting

o  Increased business centralisation

o  User participation in digital businesses

·   The government's approach

o  Long-term reform

o  Interim digital solutions

o  Preventing under-taxation

·   Important considerations

o  To what extent can digital businesses be ring-fenced?

o  What businesses would fall in scope of an interim solution?

o  To what extent could restructuring in response to BEPS and possible US tax reform change the analysis?

o  How does this interact with the role of the UK as a global digital hub?

o  What steps have been taken to address some of the challenges posed by digitalisation for the VAT system?

Click here to be forwarded to the position paper: “Corporate tax and the digital economy” as released by the UK Government on November 22, 2017.

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