As part of the new global deal on corporate tax reform from the OECD, the UK has agreed a means of transitioning out of the newly implemented Digital Services Tax (DST). It will be replaced with the new minimum global Corporation Tax rate of 15%.

At the start of October 2021, 136 countries signed up to the Organisation for Economic Co-operation and Development's (OECD's) proposed system of Global tax reform. Under two structures known as Pillars One and Two, the agreement will attempt to make the largest Multi-National Companies (MNCs) pay tax in the countries in which they do business, alongside a minimum Corporation Tax rate of 15% in all 136 territories.

The new agreement will replace unilateral efforts to tax large tech companies, including the UK's DST which came into effect from 1 April 2020 and placed a 2% revenue tax on large MNCs operating search engines, social media services or online marketplaces. 

These targeted taxes which will hit many US companies had prompted the US Government to threaten retaliatory tariffs. However, this additional agreement between the US, the UK, France, Spain, Italy and Austria sees the European countries agreeing to any additional tax charge arising from the DST or equivalent to be available as a credit against future Corporation Tax liabilities once the new system takes effect. In return, the US has agreed not to levy tariffs. Once the new system is operational, the DST will be withdrawn.

Useful guides on this topic

Digital Services Tax
The Digital Services Tax (DST) is a temporary mechanism to tax online sales pending a global solution. How does it work? Who is caught? 

External link

UK agrees transition toward new global tax system

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