HMRC have published ‘Digital services tax: consultation’, regarding the design and implementation of the new tax.

The chancellor announced in Budget 2018, that a new Digital Services Tax (DST) will be introduced from April 2020.

HMRC are now consulting on the detailed design of the tax so that it can be included in Finance Bill 2020. 

The proposal is that the DST will be a narrowly targeted 2% tax on UK revenues of large digital businesses which derive significant value from user participation.

  • It will apply to business activities such as social media, search engines, and online marketplaces.
  • It will apply to those with more than £500m global annual revenue and £25m UK revenue from the specified activities.
  • Alternative methods of calculation will be available and the DST will be Corporation Tax deductible.

The consultation includes proposals for, and asks questions about:

  • How user participation should be defined
  • The business activities in scope, out of scope and where the boundaries are between these.
  • The revenues in scope.
  • The rate and de minimis threshold.
  • Safe harbours to protect low margin businesses.
  • Tax deductions.
  • Compliance, including reporting and payments.

The consultation runs until 28 February 2019.

Summary of questions

1 Question: Do you agree the proposed approach of defining scope by reference to business activities is preferable to alternative approaches?

2 Question: Do you have any observations on the proposed features used to describe the business activities in scope of the DST?

3 Question: Do you think the approach to scope negates the need for a list of exemptions from the DST?

4 Question: Do you have any observations on the boundary issues the government has identified or others it has not identified?

5 Question: Do you have any observations on the proposed approach for attributing revenues to business activities?

6 Question: Do you think there is a need for mechanical rules to guide apportionment in certain circumstances?

7 Question: Do you have any observations on the proposed approach to defining a user?

8 Question: Do you think the proposed approach for determining user location for the purpose of the DST is reasonable?

9 Question: Do you think there is a need for mechanical rules to determine what is considered a UK user in certain circumstances?

10 Question: Are there any other circumstances where the treatment of cross-border transactions needs to be clarified?

11 Question: Do you have any comments on this chapter, and are there any other issues the government needs to consider in relation to the rate, thresholds or allowance?

12 Question: Do you agree that the safe harbour should be based on a UK and business activity-specific profit margin?

13 Question: What approach do you think the government should take in relation to the issues identified in determining a UK and business activity specific profit margin?

14 Question: Are there other elements of how the safe harbour would operate that need to be clarified?

15 Question: Do you agree with the government’s characterisation on the circumstances of when the DST will be a deductible expense for UK corporate tax purposes? Are there other issues that require further clarification?

16 Question: Do you have any observations on the proposed review clause?

17 Question: Do you foresee any difficulties for individual entities to calculate whether the worldwide group is in scope, and if so, how could they be overcome?

18 Question: Do you agree that the DST should be reported annually?

19 Question: Do you see any difficulties applying the CT rules for accounting periods for DST, and if so how could they be overcome?

20 Question: Are there any other issues relating to reporting the government should consider?

21 Question: Do you agree that mirroring the CT framework is the correct approach to minimise the compliance burden? If not do you have a preference for an alternative framework and can you give details of why this is preferred.

22 Question: Do you agree that allowing a Nominated Company to act on behalf of the group will reduce the compliance burden?

23 Question: Do you foresee any difficulties with the Nominated Company calculating DST liability on behalf of the whole group?

24 Question: Are there any practical issues around the Nominated Company accessing information from the rest of the group?

25 Question: Would specific rules be needed for companies whose AP does not coincide with the Nominated Company's AP?

26 Question: Do you have any observations on either of the proposed anti-avoidance provisions, or other avoidance risks?

27 Question: Do you think it will be necessary to introduce additional rules to ensure compliance with the tax?

28 Question: Do you have any comments on the summary of impacts?

Link to our guide:

Digital Services Tax

External link:

Digital services tax: consultation

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