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UK Launches Consultation on Digital Services Tax

UK HMRC has launched a public consultation on the design and implementation of the Digital Services Tax (DST) proposed as part of the 2018 Budget. The DST is to apply from April 2020 at a rate of 2% on the revenues of certain digital businesses that derive value from their UK users and is intended to be a temporary tax that will ultimately be replaced by a comprehensive global solution once such a solution has been agreed to and implemented. The DST is not a tax on online sales and is not intended to be a generalized tax on businesses that provide digital services, collect data, or generate revenue from online advertising.

As summarized in the consultation document:

  • The tax will be applied by reference to specific digital business activities, which the government considers derive significant value from users;
  • The business activities within scope will be the provision of a social media platform, search engine, or online marketplace;
  • The tax will apply to the revenues generated by these taxable business activities, where those revenues are linked to the participation of a UK user base;
  • A business will only become taxable if it:
    • Generates more than GBP 500 million in global annual revenues from in-scope business activities; and
    • Generates more than GBP 25 million in annual revenues from in-scope business activities linked to the participation of UK users;
  • Businesses will not have to pay tax on their first GBP 25 million of UK taxable revenues;
  • The tax will include a 'safe harbour’ which will allow businesses to elect to make an alternative calculation of their DST liability, and will be of value to those with very low profit margins; and
  • The tax will be deductible against UK Corporation Tax under existing principles, but it will not be creditable.

The consultation runs until 28 February 2019.

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