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UK agrees DST transition toward new global tax system

The UK has been spearheading the push for an international solution to the challenge of taxing technology multi-nationals for nearly a decade

The HMRC has announced that the UK has agreed a route forward to transition away from its digital services tax (DST) towards a new global tax system.

The new system will ensure multinationals pay their fair share in the countries where they operate.

It revealed the deal made by the UK, US and other European countries, outlines a DST-credit system which will bridge the gap between the UK’s DST and the start of the new system, set to be implemented in 2023.

According to HMRC, OECD-led discussions resulted in 136 countries agreeing a plan for a new system, as well as a minimum corporation tax rate of 15% that countries operate in, known as pillar one and two respectively.

HMRC said the US will not levy tariffs in response to the UK’s DST and the UK will also keep the revenue raised from the DST until the pillar one reforms become operational.

The DST credit agreement outlines that once pillar one is in effect, firms will be able use the difference between what they have paid in DST from January 2022, and what they would have paid if pillar one had been in effect instead, as credit against their future corporation tax bill.

Rishi Sunak, chancellor, said: “Following the landmark deal achieved earlier this month, I am delighted we have agreed a way forward on how we transition from our Digital Services Tax to the newly agreed global tax system.”

“This agreement means that our Digital Services Tax is protected as we move to 2023, so its revenue can continue to fund vital public services.”

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