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Some of Europe's brightest legal minds look at the tax issues across Europe which could impact multinational businesses.

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UK presses ahead with digital services tax

At a time when the priority for the UK government (after dealing with COVID-19, obviously) should be securing a good trade deal with the US, it appears a risky negotiation tactic to introduce a digital services tax (DST) to which the US has made its objections clear on several occasions. Nevertheless, the Finance Bill 2020, introduced to Parliament on 17 March, includes the UK’s new digital services tax (DST) which applies at the rate of 2% to revenues from defined digital services activities from 1 April 2020. The DST is intended to ensure the amount of tax paid in the UK reflects the value digital services businesses derive from their interactions with, and the contributions of, an active user base.

Assuming the legislation is enacted as drafted, the first payments of DST will be due 1 January 2022. Payments are required on an annual, rather than quarterly basis.

The government is committed to dis-applying the DST once an appropriate international solution is in place. The OECD is still aiming for consensus by the end of 2020, but this is unlikely to translate into implemented measures prior to the collection of the first DST payments.


A new Digital Services Tax Manual contains guidance on the DST. It is work in progress with the initial release covering the key scoping issues such as what is meant by digital services activity and revenue, users and identifying revenue of UK users. Further content will be provided in the coming weeks including more details of the administration and compliance framework.

Changes to definitions

Key parts of the draft legislation are substantially the same as the July draft, such as the thresholds (group worldwide revenues from digital activities must exceed £500m and more than £25m of these must be derived from UK users) and the calculation methods. There has been some tinkering around definitions, though, which should give more clarity as to what is in scope:

  • “social media platform” has been replaced with “social media service”;
  • “associated online advertising business” has been replaced with “associated online advertising service”;
  • the definition of associated online advertising service no longer refers to the “placing” of online advertising but to its “facilitation”;
  • online advertising revenues are attributable to a UK user if the advertising is viewed or otherwise consumed by a UK user (this ensures non-visual advertising like audio advertising is covered by the rule) - the July draft had referred to advertising “intended to be viewed by UK users”;
  • the definition of “internet search engine” now excludes a facility on a website that merely enables a person to search the material on that website and/or on closely related websites.

UK users

DST is charged on the revenues from digital services activities (providing a social media service, an internet search engine or an online marketplace) that are attributable to UK users.  The rules which determine which revenues are attributable to UK users are now much clearer and are broken down into specific scenarios or cases.

It is also helpful that it has been clarified that “user” means third party user (the legislation now excludes from the definition of "user"  the digital services provider itself, or any member of the same group as the provider; or an employee of the provider or member of the same group as the provider, acting in the course of their business).

Exclusion for online financial marketplaces

The exclusion for online financial marketplaces has been redrafted and expanded so the focus is on the nature of the activities (facilitation of the trading or creation of financial assets, financial instruments, commodities or foreign exchange). The exclusion no longer requires the provider to be a regulated entity.

Partial double taxation relief

A group may make a claim to reduce by 50% its UK digital services revenues arising from cross border online marketplace transactions where the foreign user is normally located in a jurisdiction which applies a similar tax to DST. HMRC intends to update the guidance in the DST Manual in due course with a list of foreign taxes it believes are similar to the UK DST.


The penalty provisions which were scattered about the July 2019 draft legislation have been pulled together in the Finance Bill and have been supplemented with new provisions, including on reasonable excuses, assessment of penalties, special reduction and right to appeal a penalty.


The changes have made the DST more targeted and this will be welcomed by those who were concerned they would be inadvertently caught by it. However, it is still a very complex tax with lengthy compliance and administrative provisions which will need to be examined closely by those groups affected.

Under the current international tax framework, the value businesses derive from user participation is not taken into account when allocating the profits of business between different countries. This measure will ensure the large multinational businesses in-scope make a fair contribution to supporting vital public services


zandrews, slaughterandmay, tech tax, digital services tax