On November 7, 2018 the UK Government opened a public consultation on the Digital Service Tax (DST) it intends to introduce in April 2020. This DST is designed as an interim response, pending global reform, to the challenges that digital businesses create for the international corporate tax system, as set out in the UK Government’s previous position papers. The UK Government is consulting on the detailed design and implementation of that tax ahead of its inclusion in the 2019-20 Finance Bill.

 

The consultation seeks views on the detailed design, implementation and administration of the DST. This includes:

·   The proposed approach to defining the business activities in scope of the tax;

·   The proposed approach for determining the instances when revenues become taxable;

·   The detailed design of the safe harbour;

·   The effect of the DST being a deductible expense for corporate tax purposes;

·   The review mechanism and the link to the international process; and

·   Reporting and payment.

 

The consultation runs until February 28, 2019.

 

In this respect the UK Government has issued a consultation document that discusses a.o. the following topics:

·   Introduction

o  Nature of the challenge

o  Solving the challenge

o  Interim action

o  What that solution looks like

o  The purpose of the consultation

·   User participation

o  Overview

o  Meaning of user participation

o  Relevance of user participation for different businesses

·   Business activities in scope

o  Scope of the Digital Services Tax (DST)

o  Proposed approach

o  Defining in-scope activities

§   Provision of a social media platform

§   Provision of a search engine

§   Provision of an online marketplace

o  Isolating in-scope business activities

o  Business activities not in scope of the DST

o  Boundary issues

§   Boundary between a marketplace and the selling of own goods

§   Boundary between a search engine and a website

§   Boundary between a social media platform and a website with comment functionality

§   Boundary between online content and a social media platform

·   Revenues in scope

o  Taxable revenues

o  Attributing revenues to in-scope business lines

o  Costs

·   UK revenues

o  Overview

o  Meaning of a user

o  Meaning of revenue linked to the participation of a user (UK revenues)

o  Meaning of a UK user

§   Basic approach

§   More challenging cases

o  Cross-border transactions

·   Rate and de minimis thresholds

o  Rate

o  Threshold and allowance

§   Application to legal entities

·   Safe harbour

o  Overview

o  Calculation of the safe harbour

o  Profit margin

o  Election and timing

·   Deductibility and crediting

o  Deductibility

§   Example 1 – Revenue realised by a UK principal company

§   Example 2 – A UK service provider to a foreign principal company

§   Example 3 – Revenue realised by a UK distributor for a foreign principal company

o  Crediting

·   Review clause and global reform

o  Link to the international process

o  Review clause

·   Interaction with international obligations

o  Overview

o  Tax treaties

§   Non-discrimination

§   Income tax

o  OECD principles

·   Reporting

o  Overview

o  Chargeable entity and liability

o  Reporting Periods

o  Reporting requirements

o  Registration requirements

·   Payment and compliance

o  Payment deadlines

o  Nominated entity

o  Commencement

o  Anti-Avoidance

o  Compliance

 

The consultation document also contains an Annex (Annex A) containing examples of business activities that are in and out-of-scope.

 

Click here to be forwarded to the consultation document as available on the website of the UK Government.

 

 

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