UK and International Tax news
Draft Finance Bill 2019-20
Friday 12th July 2019
HMT has published draft legislation for the next Finance Bill 2019/20 for technical consultation and subject to confirmation at Budget 2019 before the Finance Bill is laid before Parliament.
The draft Finance Bill includes proposals which will come into effect from April 2020 including those relating to large digital businesses and a new Digital Services Tax (DST), off-payroll working rules, changes to ancillary relief within capital gains tax and private residence relief, corporate loss restriction for corporation tax, capital gains tax relief for loans to traders, deferral of coproration tax on EU group asset transfers, tax rules for spreading transitional adjustments relating to new lease accounting provisions, and share loss relief.
The new DST will apply to businesses that provide a social media platform, search engine or an online marketplace to UK users. These businesses will be liable to the DST where 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.
Where a group’s revenues exceed these thresholds, revenues derived from UK users will be taxed at a rate of 2%. There will be an allowance of £25m, i.e. the first £25m of revenues derived from UK users will not be subject to DST.
The provision of a social media platform, internet search engine or online marketplace by a group includes the carrying on of any associated online advertising business. An associated online advertising business is a business operated on an online platform that facilitates the placing of online advertising, and derives significant benefit from its connection with the social media platform, search engine or online marketplace. There is an exemption from the online marketplace definition for financial and payment services providers.
The revenues from the business activity will include any revenue earned by the group which is connected to the business activity, irrespective of how the business monetises the platform. If revenues are attributable to the business activity and another activity, the business will need to apportion the revenue to each activity on a just and reasonable basis.
Revenues are derived from UK users if the revenue arises by virtue of a UK user using the platform and where advertisements are intended to be viewed by a UK user.
Where one of the parties to a transaction on an online marketplace is a UK user, all the revenues from that transaction will be treated as derived from UK users. This will also be the case when the transaction involves land or buildings in the UK. However, the revenue charged will be reduced to 50% of the revenues from the transaction when the other user in respect of the transaction is normally located in a country that operates a similar tax to the DST.
Businesses will be able to elect to calculate the DST under an alternative calculation under the ‘safe harbour’. This is intended to ensure that the tax does not have a disproportionate effect on business sustainability in cases where a business has a low operating margin from providing in-scope activities to UK users.
The total DST liability will be calculated at the group level but the tax will be charged on the individual entities in the group that realise the revenues that contribute to this total. The group consists of all entities which are included in the group consolidated accounts, provided these are prepared under an acceptable accounting standard. Revenues will consequently be counted towards the thresholds even if they are recognised in entities which do not have a UK taxable presence for corporation tax purposes.
A single entity in the group will be responsible for reporting the DST to HMRC and groups can nominate an entity to fulfil these responsibilities or the ultimate parent of the group can be responsible.
The Digital Services Tax will be payable and reportable on an annual basis.
If you would like more information on the draft Finance Bill, please contact Keith Rushen on 0207 486 2378.