DST31000 - Meaning of a User
As DST is chargeable on the revenues attributable to UK users, it is important to understand what is meant by a UK user.
A user is simply anyone that uses the digital service activity. It includes both individuals, legal persons such as limited companies and any other type of arrangement. The important question is consequently not the legal characteristics of the person, but rather whether they are using the service.
This ensures revenues from transactions between companies, between companies and individuals and from individual to individual are all potentially within the scope of DST.
Exclusions from the definition of a user
There are some exceptions from the definition of a user which broadly ensure the group providing the online service is not considered as a user.
The exclusion applies to:
- The provider of the digital service activity
- Any member of the same group as that provider
- Any employee of that group, provided they are acting in a professional capacity
Example
Group ABC provides an internet search engine through three legal entities in the group. These entities are not users.
Employee A is a software developer who is tasked with improving an algorithm. Employee A is acting in the course of the business so is not a user.
Employee B uses the search engine at home for leisure reasons. Employee B is not acting in the course of the provider’s business and so is a user.
Single or Multiple Users
In some cases, there will be just one user in a transaction that has led to digital services revenues. This will be the case for revenues that an in-scope business derives from advertising where the relevant user will be the user which viewed (or consumed) the advert.
In other cases, there could be multiple users in a transaction. This will be the case for revenues attributable to specific transactions facilitated between parties on an online marketplace (e.g. commission fees, delivery fees) where the different parties to the transaction are all users.
Example
Group BCD operates an online marketplace for flowers. User A orders a bouquet of dandelions from User B, an independent florist. The online marketplace arranges for the flowers to be delivered by User C.
Users A, B and C are all users for the purposes of DST.
Online marketplaces
This means there is no distinction between a ‘buyer’ or ‘seller’ on an Online Marketplace, users on all sides of the Online Marketplace are users for the purpose of DST.
This is because Online Marketplaces derive value from having high volumes of users willing to exchange. This is equally true for both buyers and sellers. It also avoids potential difficulties identifying which user is making a purchase or sale, for instance when a transaction is concluded by way of barter. Equally it makes no difference which party is formally charged something like commission as part of a transaction.
Non-natural persons
A user can be a legal person such as a company. Where this is the case, the user will normally be considered to be the contracting entity and there is not a requirement in the case of B2B transactions to look through the transaction chain to the location of the underlying individual consumer.
HMRC may however challenge arrangements where transactions are booked in certain group entities for the purpose of avoiding a transaction coming into scope of the DST, where in fact the benefit of those transactions primarily flows to an entity established or normally located in the UK.