UK digital services tax

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15 November 2018

The government is considering introducing a 2% digital sales tax (“DST”) on the gross revenues of e-commerce, search engine and social networking platforms which derive “significant value” from the participation of UK users.  The DST would apply exclusively to digital businesses and therefore will not impact perceived tax avoidance in other business areas.

The UK’s decision to “go it alone” in  proposing this tax stems from the wider multilateral lack of progress in coming up with a global solution.

The tax, if introduced, would apply from April 2020 to businesses which generate more than £500 million in global annual revenues from business activities conducted online, or more than £25 million from activities linked to UK users.  Notably, the tax would be imposed on revenue rather than profit, rather like a sales tax.   There will however be an alternative “safe harbour” calculation available to protect those businesses with low profit margins.

The DST  is obviously intended to target a small handful of well-known US technology companies.  It has already prompted a suggestion by Republican representative Kevin Brady that the US would take action to ensure a level playing field.  Indeed if the DST does go ahead,  then it is likely that other countries will follow.

The closing date for the consultation is 28 February 2019.

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