The government has said it is pushing for international tax law reforms, including taxing the profits of online service companies with regular users in a country but without a permanent establishment there.

In a position paper published alongside the Budget, the Treasury says there is a need to ensure that the international tax framework is ‘responsive to the changing nature of our economies in the digital age’.

The paper suggests this could include allocating an amount of profit for tax that would be in line with how active a company is in a certain jurisdiction, including the number of active monthly users. Examples of companies that could be subject to the new rules include digital marketplaces and social networks.

The rate would need to be set at a level that raises material revenue in a way that is fair, non-distortive and applicable to business models with different profit margins, the Treasury says. 

Futher, following consultation, the government said it will also introduce legislation to tackle tax avoidance by multinationals that transfer profits made by selling to UK customers to an entity in a low-tax country.

’This is about ensuring businesses are taxed where they generate value and ensuring that technological developments do not undermine long-standing tax principles. In effect, we want to update the international taxsystem for the digital age,’ the document states.

It adds that it is proposing to take more immediate action against multinational groups in the digital sector, who achieve ‘low-tax outcomes’ by holding intangible assets including intellectual property in low-tax countries where they have limited economic substance.