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Budget 2017: Gov't to charge income tax on digital economy royalties

Budget 2017: Gov't to charge income tax on digital economy royalties

Chancellor Philip Hammond has highlighted the tax challenge posed by the evolving digital economy. 

Although admiting that it will not solve the problem, he said that the government will apply income tax to royalties relating to UK sales when those royalties are paid to low tax jurisdictions, starting from April 2019. 

This is expected to raise £200 million a year. 

'Multinational digital businesses pay billions of pounds in royalties to jurisdictions where they are not taxed and some of those relate to UK sales,' he said. 

He added: 'It does not solve the problem but it sends a signal of our determination.'

Kate Ison, a senior associate at law firm Berwin Leighton Paisner, warned that companies could face an HMRC challenge even if their tax affairs are complicated rather than aggressively planned to reduce tax.

'Tackling offshore tax avoidance remains high on the political agenda.  The government has confirmed its intention to introduce new rules to tax royalties on  UK sales where those royalties are paid to a low tax jurisdiction,' she said.

'In the short term, we can expect investigations by HMRC into digital businesses to increase.'

In addition, he said that all online market places will be jointly liable with sellers for VAT in order to address online VAT fraud. 

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