The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
The Government announced at Budget 2018 that aDST would be introduced which seeks to match the amount of tax paid in the UK by digital businesses to the value derived from UK users. Legislation is included in FA 2020 and HMRC has issued aDigital Services Tax Manual.
For more detail see Simon’s Taxes D2.801.
From 1 April 2020, aDST of 2% applies to revenues which are attributable to UK users and are from digital services activities that fall into the following three categories:
a social media service
an internet search engine
an online marketplace
FA 2020, ss 43, 47
These three activities also include any associated online advertising business in relation to the activities; meaning abusiness which facilitates online advertising and also derives significant benefit from its association with the digital services activity.
There is athreshold below which the DST will not apply and asafe-harbour election for businesses with low margins or losses which are both detailed further below.
FA 2020 states that DST is charged on members of agroup with this being defined as aGAAP group; therefore, DST can arise on revenues within aUK company as well as non-UK companies. For the purposes of DST, asingle company would also be considered to be agroup.
There are no specific rules concerning the interaction of DST with corporation tax and there is no credit relief for DST against any other taxes. Therefore, the normal rules on deductibility would apply, eg for atrading business, whether the expenditure was wholly and exclusively for the purpose of the trade. In addition, where digital services activities are spread throughout agroup, the business may need to consider the impact of DST on any transfer pricing adjustments.
See ‘Analysis ― The UK’s digital services tax: what’s new’ by Michael Alliston and Judy Harrison in Tax Journal, Issue 1484, 14 (24 April 2020) for an overview of the DST rules.
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