The digital services tax is an entirely new tax proposal and one key reason for the initiative is to levy and collect taxes on UK-related profits of some of the major, global high-tech providers operating across international borders. Major companies impacted by these changes will include Facebook, Google and Amazon.
The government argued that existing tax laws are inappropriate for the digital era we now face. It's common for the major players in the internet arena to operate across borders, yet no international tax agreements are in place to retrieve some of the profits that businesses gain from country-specific trading.
The UK Chancellor and government officials argue that the internet giants rely on user activity in specific countries to enable the creation of a market and/or advertising sales. The new digital services tax will be returned via the existing corporation tax returns system and will be levied at a rate of 2% on applicable revenues generated by UK customers via all qualifying digital service providers
Very many of the digital service providers impacted by the new digital services tax are currently based in America or China. What this will mean, however, is that these companies will effectively be taxed twice on a proportion of their annual trading profits.