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Spring statement: update on corporate tax and the digital economy

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The chancellor delivered his Spring statement on 13 March, alongside which the government published an update on its position paper, ‘Corporate tax and the digital economy‘, and number of consultations and calls for evidence.

Following comments received on the position paper published at Autumn Budget 2017, the government has refined its views in an updated paper, which looks more closely at the key aspect of how user participation creates value for certain digital businesses. It also looks at issues around the proposed interim measure of a tax on the revenues of digital businesses who derive significant value from UK user participation.

The updated paper (see sets out:

  • a more detailed explanation of how user participation is considered to create value for certain digital businesses – including generation of content and engagement with platforms, representing a contribution to the brand;
  • a possible approach for incorporating user-created value into the international tax rules – the government sees justification in some reallocation to user jurisdictions of the profits recorded by those companies in a group that receive the ‘residual profits’ of the business, that is, profits after payments to service providers; and
  • questions around the detailed design of a revenue-based interim measure – defining businesses and revenues in scope, identifying user location, the possibility of taxing net revenues for conduits and pass-throughs.

The government’s position is summarised as follows:

  • the participation and engagement of users is an important aspect of value creation for certain digital business models;
  • the preferred and most sustainable solution is reform of the international corporate tax framework to reflect the value of user participation; and
  • in the absence of such reform, there is a need to consider interim measures such as revenue-based taxes.

In a written statement (, the chancellor set out a summary of the consultations published on the day, as well as an announcement of further consultations planned for the coming months. Those published on 13 March include:

  • the role of online platforms in ensuring tax compliance;
  • cash and digital payments in the new economy;
  • allowing entrepreneurs’ relief for gains before dilution;
  • EIS knowledge-intensive funds;
  • tax relief for self-funded work-related training;
  • extending the security deposit regime to CT and CIS;
  • options for the VAT registration threshold;
  • VAT split payment for online sales;
  • effect of VAT and APD on tourism in Northern Ireland; and
  • using the tax system to address single-use plastic waste.