UK proposed a two percent tax on certain digital service that generates revenue from UK users. The tax is applicable from April 1, 2020. The tax is applicable to all UK, and non-UK resident businesses and the criteria for the business to be taxed is that it must generate $650 million in global revenue from social platforms, search engines, and online market place and out of the total global revenue $25 million must be from the UK and its residents. The businesses with no physical presence in the UK are also liable to tax if it generates $25 million or more from UK users. Any activities linked to the UK residents are subject to digital service tax.
The tax is levied on gross revenue which will not include profit and costs incurred when generating revenue will not be deducted while calculating the DST liability. There are chances of deducting operation costs if the business is suffering loss or has a low-profit-margin. The activities are not yet listed to know liability and how the UK users how to be engaged, but tax authorities from the UK have given indications on how the tax will catch revenues from UK user linked activities. Social media platforms that engage in building professional communities, blogging platforms that publish information to public users, content sharing platforms, dating platforms, ads that involve UK user action, and UK users that have access to subscription will be liable to DST. Search engines that generate revenue from delivery through websites or online based application, platforms that allow users to share photos, and content that is monetized by user engagement with various platforms are also subject to taxation. Furthermore, the online market place that delivers, advertises, delivers transaction involving UK users, and list or sell activity is also taxable.
The group that is liable to pay tax must make quarterly payments in line with the UK by making annual tax report to the tax authority. The tax system is to reflect the value of the digital businesses and expects an international reform of tax, and revision is expected in 2025. Currently, the DST proposal is under public consultation where the public will give inputs for the law.