Digital services tax—a brief guide
Digital services tax—a brief guide

The following Tax practice note provides comprehensive and up to date legal information covering:

  • Digital services tax—a brief guide
  • What is it?
  • Who is affected?
  • How does it work?
  • 2% charge on UK digital services revenues of companies where group threshold met
  • Digital services activity
  • Digital services revenues
  • UK digital services revenues
  • Revenue thresholds
  • Alternative basis of charge
  • More...

The UK’s digital services tax (DST) came into effect on 1 April 2020 pursuant to provisions contained in Finance Act 2020. HMRC guidance on the tax can be found in its Digital Services Tax Manual (DST Manual).

This Practice Note is designed to be a short and high-level guide to DST only. For a fuller description of the tax and information regarding its administration, see Practice Notes: Digital services tax and Digital services tax—administration.

What is it?

The rationale behind the UK government’s introduction of DST was the belief that, in the context of ‘digital businesses’ (being search engines, social media services and online marketplaces), traditional methods of profit allocation between different countries were no longer fit for purpose in the field of taxation. With DST, a new approach has been adopted which aims to capture and tax the value that these kinds of business models derive from their UK user-base. The government believes that this move is consistent with (what it regards as being) the generally accepted proposition that the profits of a multinational group should be taxed in the countries in which its businesses create value.

Work is also being done at the international level to try to come to a global consensus on how to tackle the issue of digital businesses and indeed the digitalisation of the wider consumer-facing economy. The Organisation for Economic

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