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The digital services tax raised nearly £360 million from US tech giants including Amazon, Google and Apple in its first year, raising more than most digital businesses pay in UK corporation tax.
A report by the National Audit Office (NAO) found the UK’s digital services tax, which was introduced in April 2020 and imposed a 2% charge on gross revenue made by digital titans that run search engines, social media services and online marketplaces, which was taken in 30 % higher than the government forecast in 2021.
The government, which believes the tax could bring in more than £3bn by 2024-25, outperformed its first 2020-2021 annual target by £275m thanks to a huge online sales boom during the pandemic.
Gareth Davies, head of the NAO, said, “The digital services tax has succeeded in raising more tax from some of the biggest digital companies and has brought in more money than predicted in its first year.” He said UK authorities had not identified any firms failing to comply with the new tax, but that “HMRC may still face challenges in enforcing compliance, particularly among groups without a physical presence in the UK”.
The tax is levied on the gross revenue from digital advertising sales, and e-commerce sales companies including Amazon, Apple and eBay make from third-party sellers on their sites, but not direct online sales to consumers from retailers such as John Lewis and Tesco. .
It targets the largest companies, those with worldwide digital revenue of more than £500m and more than £25m from UK users.
Tech giants such as Amazon, Google and Meta-owned Facebook have historically paid relatively low corporation tax in the UK because they generally ensure that their British operations make very little profit, rather than funneling earnings through low-tax jurisdictions such as Luxembourg and Ireland. manages.
The NAO said that overall the 18 businesses that paid DST, which was first announced in the 2018 Budget, had a bill of more than £351m collectively paid in UK corporation tax.
“Around 90% of DST collected in 2021-22 comes from just five large business groups,” said Meg Hillier, chair of the public accounts committee. “HMRC needs to check that all businesses – not just the low-hanging fruit – are paying their fair share.”
The government has not named any business responsible for DST, although businesses including Amazon, Google, Apple and eBay have publicly accepted responsibility for DST.
The report also found that HMRC had identified many more businesses that could be taxed, with a total of 101 assessed.
Businesses found liable will have to pay tax retrospectively.
“However, future analysis may be more challenging, as HMRC identifies more business groups that may have different characteristics and propensities to pay DST,” the report said.
Amazon, Google and Apple say they have passed the 2% tax on the bills of third-party businesses and sellers who use their sites.
DST will only apply for a few years after the UK government agreed last year to phase it out, avoiding the risk of retaliatory tariffs on British products from the US.
From 2024, it will be replaced by a new global tax system after the OECD struck a deal between 136 countries, including the UK, which will see large multinationals pay tax in the countries they do business in and commit themselves to a minimum. 15% corporation tax rate.
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