On November 22, the UK Government published for stakeholders' comments a position paper setting out its views on the challenges posed by the digital economy for the corporate tax system and its preferred solutions.
The paper, which was published alongside the 2017 Autumn Budget, states that "the Government believes in the principle that a multinational group's profits should be taxed in countries in which it generates value."
It notes that the Government has taken significant steps – both at domestic and international level – to ensure taxation under this principle, including by being a party that initiated the base erosion and profit shifting project. It says the Government "led the implementation of that project's outputs, and took bold unilateral action where needed, including the introduction of the diverted profits tax in 2015, which is forecast to raise GBP1.35bn (USD1.79bn) by 2019. However, there is still more to be done."
According to the paper, 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 recognized in determining where those businesses' profits are subject to tax.
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 minimize business burdens and distortion. However, the Government stands ready to take unilateral action in the absence of sufficient progress on multilateral solutions, the paper notes.
Finally, it says 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 asset 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," the paper states.
Comments are being welcomed until January 31, 2018.