| | 1.3 Finance
13. Digital Services Tax (DST) | |
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| 13.13 Digital Services Tax: | | 1. A Digital Services Tax (DST) shall be implemented in 2020 in the UK and 2019 in France. | | 2. DST is specifically aimed at Google, Facebook, Amazon and similar overseas corporations, but it may impact on other companies. Depending on how tight the act is drafted, the number of corporations that have to pay DST may be very low or a growing list as Governments enjoy a new source of revenue. | | 3. DST is a tax on revenue not profit - expect the tax to begin at two percent or revenue and evolve as Governments enjoy the benefits with noboy to vote against it. | | 4. It is hard to tax revenue when the digital service is free of charge, so the revenue is that derived from advertising in the UK - hard to manage. | | Principal: | | * Each country has the right to tax a multinational group on the profits it derives from activities undertaken and value generated in their jurisdiction. | | * This will require multilateral OECD agreements to change the International tax framework - UK are taking unilateral arrangements as a transient measure. |
| 2. Scope: | | 1. Corporations that derive revenue from: | | (1). Social Media (Facebook). | | (2). Search (Google). | | (3). Marketplace (Amazon). | | 3. DST will only apply to corporations with world-wide revenues greater than 500 million UK pounds. | | 4. DST will only apply to corporations with world-wide revenues greater than 25 million UK pounds from activities involving UK people. | | 5. DST can be assessed on the revenue generated from online advertising as sold to people in the UK and value added to the corporation by people in the UK. | | 6. DST on a search engine only applies to external content, not to internal content. | | 7. DST will have a very narrow scope in the initial years, then it may evolve into a more general digital services tax. | | 8. Government demand that the corporation fragment their accounts in such a way that revenue derived from in-scope activities can be identified by country of the user. Where the country of the user cannot be determined (when using a VPN) then DST cannot apply. |
| 3. Exclusions: | | 1. Provision of payment or financial services. | | 2. Provision of sale of own goods. | | 3. Provision of own online content. | | 4. Provision of radio or TV content. |
| 4. Strategies: | | 1. Eventually, all countries will implement their own DST. | | 2. Eventually, DST will become a tax on most/all digital services. | | 3. A "de-minimus" threshold exists - make sure that all businesses become a large federation of small companies. | | 4. Corporations will see DST as a means to generate monoplies that block new competitors getting into the same market. Governments will not want to see a reduction of DST because a new small competitors are taking market share while not paying full DST amount. Competitors have a 2 percent cost of entering the market with no reduction for high start up costs or trading with no profit. | | 5. DST means that it may not be practical for any competitor to ever set up against the existing giants who have won Government favour by paying DST. | | 6. All services must be engineered to record the physical location of the customer and the supplier - every customer and supplier has a country code. Where either the customer or supplier is a UK user, then DST may apply to the service - eventually. Revenue derived from services including advertising clients, commissions and subscriptions may have to be defined by sovereign country. | | 7. DST reporting will follow annual corporation tax methods with quarterly estimated payments (after april 2020) - just part of the company annual accounts that has a country subtotal. Ensure that each financial transaction records the country (physical location) of the customer and the supplier. |
| 5. Federation: | | 1. Large multinational corporations have created a unique international tax problem that will cause DST to apply to a small number of monopolies in the short term. | | 2. The federation that is a large set of small companies will never be liable for DST because small companies can be agile to change accounting methods so as to always be an exception. | | 3. Monopolies will exploit DST to prevent competition, so competitors must discover niche ways to offer a different and more effective solution where revenue is not taxed. | | 4. The provision of "free of charge" services has no taxable revenue and so will pay 2% of nothing aftet the first 25 million of other revenue that is ignored. Any number of independent companies below the de-minimus threshold can exist and will exist. The concept of a "federation" of independent companies is not covered by International tax treaties and it largely overlooked by Government tax regulations. | | 5. Where one person is the shareholder of a large number of private companies, that set of companies cannot be treated as a group for tax purposes. |
| Document Control: | | 1. Document Title: Digital Services Tax. | | 2. Reference: 161313. | | 3. Keywords: Digital Services Tax. | | 4. Description: Digital Services Tax. | | 5. Privacy: Public information service for the benefit of mankind. | | 6. Issued: 11 Dec 2018. | | 7. Edition: 1.2. |
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