21 October 2020: UK digital services tax will continue for longer than originally anticipated after OECD decision to extend discussions until mid-2021 ICAEW’s Tax Faculty reports.

The OECD has confirmed that the deadline for its members to reach a consensus around a global digital services tax solution has been delayed.

While a framework had been anticipated by the end of 2020, this document confirms that agreement is now expected by mid-2021. The UK digital services tax is therefore likely to continue to apply for longer than originally foreseen.

The Paris-based OECD organisation is leading the negotiations between close to 140 countries in an attempt to finally resolve the question of where and how much tax digital businesses should suffer.

This debate has developed as the existing rules do not necessarily tax businesses in the jurisdiction where significant value is created. For example, taxing rights are not normally driven by where the user base of digital businesses reside but can often hinge on physical presence of the business.

The global framework for taxing digital services being developed by the OECD comprises of two pillars. On 12 October blueprints of these pillars were published. These provide further detail on the technical design of each pillar and highlight areas where further development is required, or political agreement needs to be reached.

• Pillar One Blueprint reflects a focus on new nexus and profit allocation rules to address perceived flaws in the way the digital economy is currently taxed by virtue of physical presence.
• Pillar Two Blueprint reflects an approach that is focused on the remaining base erosion and profit shifting (BEPS) challenges and effectively proposes a global minimum rate of taxation.

The OECD has announced a public consultation on these blueprints which closes on 14 December. Public consultation meetings (virtual) will be held in January 2021 and details of these will be published in December on the OECD website