The Digital Services Tax (DST) has come into effect this month but questions remain about who will pay it and how much they will pay, according to the Chartered Institute of Taxation (CIOT).

The Institute suggested the aim of the UK’s DST is to ensure that digital businesses pay tax to reflect the value they derive from the participation of UK users, but that this had not been possible under the existing scheme of corporation tax.

The detailed provisions implementing the DST are in the Finance Bill, which is currently passing through the UK Parliament, and the clauses in the Finance Bill include changes from the draft legislation published in July 2019, which the CIOT indicated were “welcomed”.

The Institute indicated there is greater clarity as to “what is in scope” in relation to online market places, as well as what constitutes a platform. In particular, the CIOT praised the clarification that platforms and market places used by businesses internally are “not within scope”.

However, CIOT president, Glyn Fullelove, suggested that more clarity and greater understanding about DST is still needed.

“There is welcome detail in the Finance Bill aimed at assisting how to calculate revenues attributed to UK users, but businesses will still face significant practical difficulties in identifying the relevant components of what is within the charge to tax,” Fullelove commented.

“There is continued uncertainty around online gambling and gaming platforms and it is not easy to see whether these are in or out of scope.

“The general public is broadly behind the DST. Many online companies are perceived to be doing well as more business is directed online due to Covid-19 restrictions on movement. However, DST is not aimed at protecting the high street from competition from on-line retailers, nor is it aimed at stopping profits arising in the UK being shifted by multinationals out of the UK to tax havens, as some recent reports have said.

“We have supported broadly the proposed design of the DST through its consultation process, as the most practical approach available to achieve the policy aims. Many companies have known for several years that they are likely to face the tax and have had time to prepare for its introduction.

“But it is a tax on revenues and this means the tax will inevitably over-tax some companies and under-tax others. The DST should not be viewed as a long term solution whatever one’s opinion on the broader merits of the tax; and questions remain on its scope and impact.”

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