Digital Services Tax (DST) has been a brewing topic for too long worldwide. The businesses especially in the digital service industry generate most of their revenues from the customers located across the world but pay a maximum portion of their taxes in the country in which they are physically located (which generally is their home country). This defeats the underlying principle of the international corporate tax framework that is: The profit of a multinational group should be taxed in the countries in which it creates value.
In order to get hold of such service providers in the tax net, the UK has introduced a charge of 2% Digital Service Tax. This tax is levied on the revenues derived from UK users of social media platforms, search engines, and online marketplaces.
This levy has created a major impact on US tech giants like Google, Amazon, and Apple who have changed or are ready to change their pricing policies as a response to this new tax reform. These businesses are trying to increase the cost of their services by shifting the burden onto the users by recovering this 2% from them as an additional charge or vice versa.
Amazon, for example, hiked its fees from 1 st September 2020 for third-party sellers by 2% post the passing of legislation making DST effective. It increased its referral fees, monthly FBA storage fees, and Multichannel Fulfilment (MCF) fees, Fulfilment by Amazon (FBA) fees by 2% to reflect the additional cost due to DST.
Apple on the other hand is reforming the developer fees payment on the App Store in the UK to give effect the increased cost due to new tax reform.
Another tech giant, Google, is contemplating increasing the fees it charges for advertising on Google Ads and YouTube in the UK by 2%. It has intimated its customers that it would be raising the advertisement fees on Google Ads and YouTube with effect from November 2020 as a result of DST.
Now the questions that arise here are:
- If we dive deep into the applicability of DST we’ll find that it is not chargeable for the first £25 Million of the annual turnover, so if these tech giants charge it from all customers, they will be making a windfall income of £500K every year. So is it fair to charge it to their customers directly?
- This leads us to another issue, would it be ethically fair on the tech companies’ part to mention this tax as an additional cess to the customers straightaway without factoring in the £25 Million annual DST free turnover allowance they will be enjoying. Or would it be prudent to increase the overall prices to cover these additional expenses?
- Shifting the burden would just create a hole in the customer’s budget enabling the tech companies to take away most of the taxable profits to their home countries instead of getting them taxed in the country in which value creation takes place. Is it wise of the US tech giants to shift the burden on the customers? Will this not undermine the purpose for which this tax is levied?
