By Gemma Brindley, Corporate Tax Director in the Cheltenham office of national audit, tax, advisory and risk firm Crowe UK
The UK is set to introduce its own digital services tax (DST) from April 2020. The announcement was confirmed last July when the UK Government published its Finance Bill 2019-20.
July was also when President Macron signed the French DST legislation, with the new tax backdated to 1 January, 2019.
However, the French government has now announced that it will not implement its proposals for a DST until the end of the year at the earliest.
With the new Chancellor Rishi Sunak’s Budget set to take place this month, many will be waiting to see how DST is addressed from a UK perspective.
How to tax the digital economy has been a somewhat contentious subject for all countries across the globe.
All governments are agreed on the need to address this area, but controversy comes into play as it risks upsetting the US president during an election year and at a time when the UK is seeking advantageous trade terms with the US.
With an eye on pending US-UK trade negotiations, the US has objected to the introduction of a UK DST, but before the previous chancellor resigned, the Treasury had confirmed its commitment to the introduction of the tax from April 2020, saying it would be repealed when a global solution is in place.
The new UK legislation introduces a DST of two per cent on digital services revenues that are derived from social media platforms, running search engines and online marketplaces like Amazon – it does not simply mean anything sold on the internet. Financial and payment services are exempt.
Although the thresholds where DST is applied are high – groups with global digital services revenues of more than £500 million and UK digital services revenues of more than £25 million – it will still encompass many successful brands with a UK and global reach.
Online marketplace transactions will be considered to involve UK users if at least one of the parties is UK-based, but if one of the parties is based in another country with a similar tax to DST, the tax charged will be reduced by 50 per cent.
If an advert is intended for a UK audience, then the advertising revenue produced will be judged to have come from UK users.
That, in essence, is how DST is intended to operate, but with only a few weeks to April 1, 2020 we are still notably short on detail.
We do know that the legislation will not provide a particularly significant contribution to the UK economy.
It is projected to raise £275 million in its first year, rising to £370 million thereafter. To put this into context UK tax receipts amounted to approximately £623.4 billion in 2018-19.
For now, we await the Budget.Crowe will be following any developments closely and we are well-placed to discuss and advise on the potential impact of a future DST on your business.