The UK has published the Finance Act 2020 in the Official Gazette. The Act received royal assent (was enacted) on 22 July 2020 following agreement on the text by both Houses of Parliament. One of the key aspects of the Finance Act 2020 is the Digital Services Tax (DST) provisions.
DST Rate and Scope
The DST applies from 1 April 2020 at a rate of 2% on digital services revenues attributable to UK users, which is determined at the level of a group. The digital services revenues of a group for a period are the total amount of revenues arising to members of the group in that period in connection with any digital services activity of any member of the group. Digital services activity means providing:
The services activities are further defined in the Act as follows:
Social media service means an online service that meets the following conditions:
Internet search engine does not include a facility on a website that merely enables a person to search:
Online marketplace means an online service that meets the following conditions:
Further, providing a social media service, internet search engine, or online marketplace also includes carrying on an associated online advertising service. Associated online advertising service means an online service that:
Where an associated online advertising service derives significant benefit from its association with more than one type of digital services activity, revenues arising from the service are to be treated as attributable to each of the types of digital services activity in question in a just and reasonable manner
Lastly, an exclusion is provided for online financial marketplaces. An online marketplace is an online financial marketplace for a relevant accounting period if more than half of the revenues arising to the provider in the accounting period in connection with the online marketplace arise in connection with the provider’s facilitation of the trading of financial instruments, commodities, or foreign exchange.
A group is subject to DST if meeting prescribed threshold conditions for an accounting period, including:
If the duration of the accounting period is less than a year, the above amounts are proportionately reduced.
Charge to DST
When the threshold conditions are met for an accounting period, each person who was a member of the group in the accounting period (a relevant person) is liable to DST in respect of UK digital services revenues arising in that period. To find the liability of a relevant person to DST in respect of the accounting period, the following steps are taken:
The appropriate proportion means such proportion of the total amount of UK digital services revenues arising to members of the group in the accounting period as is attributable to the relevant person. If the duration of the accounting period is less than a year, the sum mentioned in step 2 is proportionately reduced.
An alternative basis of charge may also be elected, which involves apportioning the total amount of UK digital services revenues among the three different categories of revenues and calculating an operating margin that takes into account the amount of relevant operating expenses of the group in the accounting period.
DST Payment and Return Obligations
Where DST applies in respect of an accounting period, it is due and payable on the day following the end of 9 months from the end of the accounting period. The DST return for an accounting period must be delivered before the end of one year from the end of the accounting period.
Returns are to be delivered by the responsible member of the group, which is the parent of the group or another group member nominated by the parent. The responsible member is also required to comply with certain notification obligations, including a notification to HMRC when the threshold conditions have been met, which is due within 90 days from the end of the accounting period.
Other Measures of Finance Act 2200
Some of the other main measures of the Finance Act 2020 include the following:
In addition, measures are provided in relation to incentives and relief provided for COVID-19, as well as measures for the taxation of various (COVID-19) support payments.