New Digital Services Tax

Published on 20 January 2020

Some businesses will be subject to a new tax from April 2020.

What is happening?

From April 2020, a new 2% tax will be introduced by the government on the revenues of social media platforms, search engines and online marketplaces. 

This will also include the carrying on of an associated online advertising business. 

Such businesses will be subject to this new “Digital Services Tax” if their worldwide revenues derived from such services are greater than £500m worldwide and £25m in the UK.

Why does it matter?

The government is introducing the tax to address a “misalignment” between where digital services providers make their profits and where those profits are taxed. It is intended to close a loophole by ensuring international corporations with high revenues make a fair contribution to public finances. The tax is projected to add over £440m a year to the treasury by 2023 to 2024.

Retailers that use online platforms to market and sell their products are likely to be affected.

This includes groups’ monitoring of their tax obligations and reporting them to HMRC. In the government’s guidelines, it makes clear that “a single entity” within a group will be responsible for reporting the Digital Services Tax to HMRC. Groups will also be permitted to nominate an entity to do this. 

A further point of interest – in July, the USA launched a probe of the French government for a similar tax (3%), as it believes American companies are being unfairly targeted. This has not discouraged the UK or French governments from implementing their respective regulations, so it will be worthwhile to monitor how the USA’s stance develops.

What action should you take?

1. Businesses and retailers that fit the criteria should prepare accordingly. 

2. This will include assessing and taking advice on whether the tax applies to your business, and how to manage those obligations.

3. Liaise with your Finance Team to discuss the new requirements.

If you would like any assistance, please contact Adam Craggs or your usual RPC contact.

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