Online giants targeted by new tax.

From 1 April 2020, there will be a new 2% digital services tax on the revenues of search engines, social media services and online marketplaces which derive value from UK users, when the group’s worldwide revenues from these digital activities are more than £500m and more than £25m of these revenues are derived from UK users.

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.

There is an allowance of £25m, which means a group’s first £25m of revenues derived from UK users will not be subject to digital services tax.

The provision of a social media service, internet search engine or online marketplace by a group includes the carrying on of any associated online advertising service. A single entity in the group will be responsible for reporting the digital services tax to HMRC. Groups can nominate an entity to fulfil these responsibilities. Otherwise, the ultimate parent of the group will be responsible.

The digital services tax will be payable and reportable on an annual basis.

It is unclear if or how these large businesses will charge the small businesses that use their platforms.

Article from ACCA In Practice