In brief
HM Treasury recently released a report on the five-year anniversary of the UK digital services tax, in response to the parliamentary mandate to “conduct a review of digital services tax and prepare a report of the review.” Regrettably, the report missed an important opportunity to reexamine whether the policy justifications that were advanced to support the Digital Services Tax (DST) at the time of its enactment five years ago continue today. Putting aside whether the stated rationales justified the extraterritorial tax in 2020, the changes since then in the international tax framework — including the implementation of the base erosion and profit-shifting reforms, changes in US tax law, and the resulting changes in the tax obligations of digital sector multinational enterprises — seriously challenge those policy justifications for a DST today. The OECD itself has documented the consequences of these developments in its recent “stocktake” report on the implementation of the BEPS reforms. In addition, both the developments in international tax law over the past several years and public statements that the members of the OECD/G20 inclusive framework on BEPS intend to reengage in their discussions on taxation of the digital economy provide countries with an opportunity to revisit the arguments generally made to support DSTs and reconsider how to effectively achieve countries’ tax policy goals.