Digital services tax for IT giants effective from 1 April

From the 2020/21 tax year, digital multinationals like Google, Amazon and Apple, will have to start paying the new digital services tax (DST)

In line with global efforts to raise more tax from cross border digital sales, the UK is taking a unilateral approach on a digital sales tax until the OECD finalises a global framework for digital taxation, which is currently being finalised.

HMRC has published details of how companies can register for and pay the new digital services tax (DST) which came into operation from 1 April 2020.

DST is a 2% tax on the revenues derived from UK users of social media platforms, search engines and online marketplaces and applies to revenue earned from 1 April 2020.

Any business which provides a social media platform, search engine or online marketplace to UK users will need to register to pay if it has global revenues of more than £500m in a year and UK revenues of more than £25m in a year.

DST applies at group level. The revenues from all the businesses in a group will contribute towards these thresholds.

A responsible member for the group must register on behalf of all the companies in the group. If the group does not choose a responsible member, the ultimate parent company of the group will be the responsible member.

DST applies to social media platforms which both promote interaction between users and have user content as a significant feature of the service. Examples are social or professional networks, blogging or discussion platforms, video or image sharing platforms, dating platforms and review platforms.

It also applies to internet search engines, but not internal website search engines, and to online marketplaces which facilitate the sale of goods and services offered by third party users.  It does not apply to online marketplaces that sell financial services.

A UK user is defined as either an individual that is normally located in the UK, or a business established in the UK. This may be different to where the user is located at the time of the transaction.

Businesses are required to use the evidence available to determine if it is likely that a user is normally located or established in the UK. This includes delivery address, payment details, IP address, the intended destination of advertising based on contractual evidence, or the location of property or goods rented out.

Companies need to pay any DST owed within nine months and one day from the end of their accounting period.

They need to register within 90 days of the end of their first DST accounting period. HMRC warns that as DST will apply to accounting periods from 1 April 2020, if a group’s accounting period ends soon after this date it may need to take action now to avoid a possible penalty.

There is an online service for registration and payment which opened on 1 April 2020.

HMRC Guidance Check if you need to register for Digital Services Tax

HMRC Guidance Register for Digital Services Tax and change your details

HMRC Guidance Work out your Digital Services Tax

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