HM Treasury have published a response to ‘Digital services tax: consultation’, regarding the design and implementation of the proposed new tax to be introduced from April 2020.
The proposal is that the Digital service tax (“DST”) will be 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.
- to businesses with over £500m global annual revenue and £25m UK revenue from specified activities.
Most of the 79 respondents acknowledged the challenges facing the international tax system, with broad support for the ongoing OECD process to seek a consensus-based international solution to the tax challenges arising from digitalisation by 2020. There were concerns about the UK adopting a unilateral approach and a revenue based tax, with calls for it to be delayed or temporary in nature. There were also concerns about the tax being passed onto consumers
Following the consultation the government has confirmed that it does not intend to make any changes to the proposals included the original consultation document and has concluded the position in respect of certain specific areas:
- The DST will be payable annually, not quarterly, with registration and submission deadlines extended from what was originally proposed.
- To prevent double taxation there will be a limit to the revenue from a transaction that is charged to DST where one of the users in relation to the transaction is located in a country which also has a DST which applies to marketplace transactions.
- A UK profit margin will be used in the safe harbour calculations.
- The DST will be calculated and reported at a group level by a nominated group company.
Draft legislation was published alongside the consultation response.
Links to our guides: