DST25000 - Revenues Arising in Connection with Multiple Services

Some revenue streams may be received in connection with both a DST activity and another activity. The legislation is focussed on the relationship between the revenue and the digital services activity. It does not consider the relationship with other activities.

This means revenues will all be considered digital services revenues if they are connected to a digital services activity. It does not matter if they are also connected to other activities.

However, there may be cases where only part of the revenue is connected to the digital services activity. In these cases, the amount or proportion which is attributable to the DST activity should be determined on a just and reasonable basis.

Such an apportionment is only necessary when there is an identifiable part of the revenue which is not connected to the digital services activity. If revenues are all connected to a DST activity, all of the revenues will be attributable to that DST activity.

Just and reasonable

In cases where revenues do relate to both in-scope and out of scope activity, the proportion which is relevant for DST should be determined on a just and reasonable basis. Whether a basis is just and reasonable will depend on the particular facts and circumstances of the business activities and the revenues concerned.

This consideration will take into account the information available to the group. The relevant test is not that the method used is the most accurate or most just and reasonable basis, it simply has to be a basis which an objective and informed person would consider just and reasonable having regard to the circumstances. The method chosen should reflect the relative contribution of the activity to the wider business.

Some methods which may be just and reasonable, depending on the circumstances, are:

• revenues split in proportion to the costs incurred for each line of business activity; or
• a split based on the total amount of revenue that can be directly attributed to each business activity.

Example A

Group A runs a social media platform and a separate online retail platform. It charges a small monthly subscription fee to access both platforms but generates the majority of its revenue from advertising against the separate websites. In total 40% of its advertising revenue comes from the social media platform and 60% from the online retail platform. In this case it may be reasonable for the business to split the subscription fee revenue on a 40/60 basis between the in and out of scope business activities.

Example B

Group B provides an online marketplace and a space agency. For the purpose of this example, it is assumed part of the revenue relates to the marketplace. The rest has no connection to the marketplace and relates to the space agency. The marketplace has 1,000 users, while the space agency only has one user. There are overlapping revenues of £100m, which as a matter of fact are attributable to the space agency. However, if the revenues were apportioned by simply taking the numbers of users of each activity, the revenues would be largely attributed to the online marketplace. This demonstrates the need for the methodology to reflect the relative contribution of each service to the wider business of the group.

Cross-subsidisation between complementary activities

Sometimes groups will operate different online services which complement each other. These services may derive financial benefits from being operated alongside each other.

For example, an online marketplace is a different online service than an online retail store, but there is potentially some complementarity when the two are offered alongside one another. The increased product offering and user traffic will benefit both services.

HMRC would not typically expect these indirect benefits of indirect cross-subsidisation to be factored into the just and reasonable attribution of revenues between the different services.

There could be cases where it is considered appropriate to attribute part of the revenues that are directly related to Service A to a complimentary Service B. However, this is likely to be very rare. There would need to be a high degree of interdependence and reciprocity between the two services, and it would need to be clear that the revenues attributed to Service A presented an unreasonable reflection of the relative contribution of the two services to revenue generation.

Example C

Group C provides a social media service and designs, manufactures and distributes hydrogen boilers. For the purpose of this example it is assumed the two services are complementary as successful R&D relating to the boiler improves the performance of the social media service and the social media service improves the group’s brand and boosts boiler sales.

These reciprocal benefits do not need to be quantified and incorporated in the attribution of revenues between the services. Revenues from the sale of boilers are directly attributable to the boiler business and it would not be just and reasonable to attribute these to the social media service.

Revenues arising from more than one digital service activity

Some revenues may be connected to a single service that meets more than one digital services activity definition. As DST revenues are defined as those arising in the consolidated accounts, there will be no double counting of revenues. The revenues will only be recognised in the accounts once.

Example D

Group D provides a platform which could potentially meet both the Search Engine and Online Marketplace definitions. It has total DST revenues of £100m. While the DST revenues in connection with the search engine or online marketplace are both £100m, the total DST revenue is only £100m and not £200m.