Announced, proposed and implemented: Key features of the United Kingdom's DST

Big Ben in London

Global Tax Alert


The United Kingdom introduced the DST with effect from April 1, 2020.  It applies to businesses providing social media services, Internet search engines and online marketplaces to UK users, along with associated online advertising businesses.

Affected taxpayers

Groups will only be subject to the DST when their worldwide revenues from in-scope digital services activities exceed £500 million and over £25 million of these revenues are attributable to UK users.

Covered services and exempted activities 

Social media services

A social media service is an online service where both (a) one of the main purposes of the service is promoting interaction between users (including interaction between users and user-generated content) and (b) the making of content generated by users available to other users is a significant feature of the service.  This is intended to cover businesses that rely on an active and engaged user base to create value.

Businesses likely to be in-scope include social networking sites, professional networking sites, micro-blogging platforms, video or image sharing platforms, online dating websites and platforms that primarily exist to share user reviews. Online forums and online games may be in-scope depending on the precise nature of the business.

Internet search engines

While the legislation does not define the precise scope of this type of business, the UK tax authority, HM Revenue & Customs (HMRC),  has indicated that it should take its ordinary meaning as "an online service whose core purpose is to allow users to search for webpages or information across the internet… The search results will usually be presented as a list of links or other information ordered by the result’s relevance or closeness to the original query."

Search facilities on a website that allow a user to search the material only from that website are not subject to the DST.

Online marketplaces

An online marketplace is an online service where both (a) the service enables users to sell (or hire) particular services, goods or other property to other users or to advertise or otherwise offer them for sale (or hire) to other users and (b) one of the main purposes of the service is to facilitate the sale (or hire) by users of particular services, goods or other property.

This category is not intended to cover online sales of e-commerce retailers or online sales generally, and online financial marketplaces are specifically excluded.  This category essentially covers businesses that act as intermediaries and match users, and it does not matter if the marketplace facilitates B2C, B2B or C2C transactions.  Most activities within the gig or sharing economy are intended to be covered.

The online advertising services associated with social media services, internet search engines and online marketplaces are also intended to fall within the scope of the DST.  This is to ensure that revenue generated by businesses from online advertising, rather than the provision of the social media service, internet search engine and online marketplace itself, also falls within the DST.

Identifying UK users

A "UK user" is any user that it is reasonable to assume is normally in the UK (in the case of an individual) or is established in the UK (in any other case).  Groups should use the information available to them, such as delivery address, payment details, IP address and intended destination of advertising, to determine whether a user is a UK user.

UK users do not include service providers or group members, or any employees of the foregoing who are acting in the course of their employment.

Collection and compliance

The DST is calculated as 2 percent of gross revenues derived from in-scope digital services provided to UK users that exceed a £25 million de minimis threshold.

For groups with low profit margins, an alternative method of calculation may be available, which is calculated by reference to the group's operating margin.

In order to prevent double taxation, there is a limited concession where an online marketplace transaction involves a user in another country that operates its own version of the DST.  In such a case, only 50 percent of the revenue from the transaction will be subject to the DST.

The DST is not automatically deductible for UK corporation tax purposes, although in most cases it is expected to be deductible.  It will not be creditable against the UK's diverted profits tax (DPT) or the income tax charge that applies to offshore receipts in respect of intangible property (ORIP).

Groups that become subject to the DST must notify HMRC within 90 days of the end of the accounting period in which they meet the financial threshold conditions. The due date for submitting DST returns and making payments of DST follow the corporation tax rules. In other words, payment is due 9 months after the end of the relevant accounting period and the return is due 12 months after the end of the accounting period.  A single return is submitted per group by the 'responsible member' of the group. 

Unsurprisingly, the UK government views the DST as compliant with the UK's international tax obligations, and we understand that the government believes the DST is a tax separate from income tax (so it should not be subject to the same treaty limitations applicable to taxes on income of non-resident companies).

The UK’s DST is intended to be an interim measure pending a long-term global solution to the tax challenges arising from digitalization.  The UK government has confirmed that it is committed to disapplying the DST once "an appropriate international solution" is in place.

Find out more about this evolving concern by contacting the author or your usual DLA Piper advisor.

To review the key features and country-specific developments of the DST in France, Italy and Spain, please click on the following links:

Key features of France’s DST

Key features of Italy’s DST

Key features of Spain’s DST