The new Digital Services Tax begs two big questions…

Published by Laurence Parry on 29 October 2018

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The Chancellor Philip Hammond announced in his Budget today (29 October) the introduction of a new digital services tax. The tax, which will be shaped further in a consultation, will apply to search engines, social media platforms, and online marketplaces and will be levied at 2% of the turnover from those businesses that relate to UK users.

The Government gives the following examples of businesses that will fall into this new tax:

  • if a social media platform generates revenues from targeting adverts at UK users, the Government will apply a 2% tax to those revenues;
  • if a marketplace generates commission by facilitating a transaction between UK users, the Government will apply a 2% tax to those revenues;
  • if a search engine generates revenues from displaying advertising against the result of key search terms inputted by UK users, the Government will apply a 2% tax to those revenues.

This begs two questions – how will the legislation define this? The Government obviously knows who it wants to target – but that is not the same as writing it into law. For example, it is intended that the provision of online content and television/broadcasting services will not be in scope. How will the Government ensure that Amazon’s income is split to ensure that Amazon Marketplace is caught but Amazon Prime isn’t?

Also, how will the UK Government obtain access to this data, when it is by definition held outside of the UK?

It will only apply where worldwide income is over £500m, and the first £25m of UK income will be treated as exempt.

The consultation will look to provide clarification, but we do already know that it will only apply where worldwide income is over £500m and that the first £35m of UK income will be treated as exempt.

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