UK and International Tax news

HMT Announces Transition To New Pillar 1 Tax Rules

Tuesday 26th October 2021

The UK, Austria, France, Italy, Spain and US have announced agreement on the transition from existing digital services taxes to the new multilateral solution recently agreed by the OECD/G20 Inclusive Framework.

On 8 October, an historic agreement was reached between 136 countries of the OECD/G20 Inclusive Framework on a two Pillar package of reforms to the international tax framework to be implemented in 2023. In support of that agreement, the UK, Austria, France, Italy, Spain and US have announced the terms of an agreement on the transition from existing digital services taxes to the new multilateral solution.

The statement issued by HM Treasury last week describes a political compromise reached on a transitional approach to existing Unilateral Measures while implementing Pillar 1.  Under this Unilateral Measures Compromise, the UK, Austria, France, Italy, Spain and countries which have all enacted Unilateral Measures before October 8, 2021, are not required to withdraw their Unilateral Measures until Pillar 1 takes effect.

However, to the extent that taxes that accrue to the UK, Austria, France, Italy and Spain with respect to existing Unilateral Measures during a defined period after political agreement is reached and, before Pillar 1 takes effect, if they exceed an amount equivalent to the tax due under Pillar 1 in the first full year of Pillar 1 implementation, such excess will be creditable against the portion of the corporate income tax liability associated with Amount A as computed under Pillar 1 in these countries, respectively.

As part of the Unilateral Measures Compromise, the US has agreed to terminate proposed trade actions and commit not to impose further trade actions against the UK, Austria, France, Italy, Spain, and with respect to their existing digital services taxes until the end of the Interim Period.

The UK introduced a DST at 2% from April 2020 on revenues made by large businesses from social media services, search engines and online market places to UK based users. A business is large if it has in scope annual global revenues in excess of £500m of which more than £25m is derived from UK digital services revenues.

If you would like further details on the above, including the UK’s DST, please contact Keith Rushen on 0044 207 486 2378.

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