Digital Services Tax - Are Tech Companies Avoiding It?

The Public Accounts Committee and the National Audit Office are both slightly concerned about the effects of the Digital Services Tax (DST) with measure generating 30% more tax revenue than was expected.

Whilst on the one hand this is encouraging, on the other, it implies that HMRC's own models of the tax and its impact on the behaviours of the big tech firms that its levied on are flawed, and longer-term this increases the likelihood of tax avoidance.

Background

The UK Digital Services Tax (DST) is a 2% tax on the revenues of search engines, social media platforms and online marketplaces that derive value from UK users.

It was introduced in April 2020 in response to concerns that digital businesses are not paying their fair share of tax in the UK. The DST applies to companies with global revenues of more than £500 million and UK revenues of more than £25 million.

The DST is a controversial tax. Some argue that it is unfair to target digital businesses, while others argue that it is a necessary step to ensure that these businesses pay their fair share of tax.

The DST is currently being challenged in the courts. The European Commission has also launched an infringement procedure against the UK over the DST, arguing that it is discriminatory and violates EU law.

It remains to be seen whether the DST will be successful in raising revenue for the UK government. However, it has certainly sparked a debate about how to tax digital businesses.