Laurence Parry, tax partner at Kreston Reeves, on why the new digital services tax begs to very important questions. 

The Chancellor Philip Hammond announced in his Budget at the end of October the introduction of a new digital services tax.  The tax, which will be shaped further in a consultation, will apply to search engines, social media platforms, and online marketplaces and will be levied at 2% of the turnover from those businesses that relate to UK users.

The government gives the following examples of businesses that will fall into this new tax:

If a social media platform generates revenues from targeting adverts at UK users, the Government will apply a 2% tax to those revenues;
If a marketplace generates commission by facilitating a transaction between UK users, the Government will apply a 2% tax to those revenues;
If a search engine generates revenues from displaying advertising against the result of key search terms inputted by UK users, the Government will apply a 2% tax to those revenues.
This begs the first question – how will the legislation define this?

The government obviously knows who it wants to target, but that is not the same as writing it into law. For example, it is intended that the provision of online content and television/broadcasting services will not be in scope. How will the government ensure that Amazon’s income is split to ensure that Amazon Marketplace is caught but Amazon Prime isn’t?

The second of our questions is how will the UK government obtain access to this data, when it is by definition held outside of the UK?