DST27000 - Attributing to UK Users – Online Marketplaces
DST26000 outlined the general rules that attribute Digital Services revenues to UK users. This page explains the additional rules which apply specifically to online marketplaces.
These rules are needed because the online marketplace definition covers online services that connect users who are seeking something with other users who are willing to provide it. Therefore, unlike the other services, marketplaces may receive revenue from more than one user for a given transaction.
When a non-UK user buys or sells something from a UK user the question arises as to how much of the revenues are attributable to UK users.
The marketplace rules are designed to address this issue.
There are different rules depending on the nature of the revenue received by the online marketplace. These revenues can be categorised as follows:
· Revenues from individual marketplace transactions
· Revenues from user’s listing individual items on the marketplace
· Online advertising revenues
· Other revenues including subscription and membership fees
The revenues in the third and fourth categories will continue to be dealt with under the general rules in Cases 4 and 5. This ensures neutrality in the treatment of similar revenues between the different digital services activities.
The specific online marketplace rules apply to the revenues in the first two categories.
These rules are modified for online marketplaces which facilitate transactions relating to land or property (Case 2). These rules are explained in more detail in DST28000.
It should be noted that the revenues in Cases 1 to 3 relate to specific types of income. Consequently, the legislation does not provide revenues to be apportioned between UK and other users under any of these three cases.
Case 1 – marketplace transactions
Case 1 applies to revenues from marketplace transactions where a UK user is a party to the transaction. This applies equally whether the UK user is the provider or the consumer of the good or service in question.
Where Case 1 applies all the revenue from the transaction will be UK Digital Services revenues even if the other parties to the transaction are non-UK users.
Marketplace transactions are defined as transactions on the online marketplace between users. It is intended to apply to individual transactions which are concluded on the marketplace and will cover revenues like commission fees, or other payments which are contingent on a transaction taking place (e.g. delivery fees).
It does not apply when particular things are listed on the service, but the transaction is concluded away from the marketplace (or not at all). This means:
· Case 1 will apply when user A orders goods from another user on an online marketplace.
· However, it will not apply when User B lists goods on the online marketplace for sale and User C contacts the seller and arranges separately to purchase the goods.
This latter situation is dealt with under Case 3.
Case 3 – listings and advertising of specific property on the marketplace
Case 3 is where revenue arises in connection with online advertising for particular services, goods or other property offered for sale on the online marketplace by a UK user.
Some online marketplaces allow users to list items for sale but do not provide the facility for users to purchase items on the online service. This is particularly common for high value items where the purchasing user will typically want to verify the quality of the listed goods or services before committing to a purchase.
Other online marketplaces which do provide a facility for users to buy items on the online service may also charge a fee for listing items, regardless of whether a successful transaction is concluded, as part of their fee structure.
Case 3 is aimed at these types of revenues. It will normally apply to:
· Fees charged for allowing users to list particular things on the marketplace
· Sponsored or promoted listings on the marketplace
Where Case 3 applies, the revenues will be UK Digital Services Revenues when the user listing or advertising the particular thing is a UK user.
This prevents the group from having to trace which listings ultimately resulted in a successful transaction involving a UK purchaser. The marketplace’s fee is also often insensitive to the outcome of the listing so the earning of the revenue can be seen to be more strongly associated with the user on the supply side.
Difference between listings in Case 3 and Online advertising in Case 4
Both Case 3 and Case 4 refer to online advertising in the legislation. However, there is an important distinction. Case 3 only applies to the advertising of particular goods, services or other property which are offered for sale on the marketplace.
It will consequently only apply to advertisements or listings for specific items for sale. Brand advertising and other advertising aimed at influencing consumer perceptions rather than persuading the consumer to buy a particular product will come within Case 4.
The advert must also be offered for sale on the actual marketplace. Display adverts will therefore fall under Case 4 even if the advert is promoting a specific product (for example, when the advertisement ‘retargets’ a specific product based on the user’s browsing history).
Case 5
Online marketplace revenues not falling within Cases 1 to 4 will come within Case 5 if the revenues arise in connection with a UK user.
Revenues typically coming under Case 5 will be those where a fee is paid by a UK user which doesn’t relate to individual transactions. Examples would include subscriptions and other access fees.
Example A
A UK user buys a table via an online marketplace from a user based in Avalon.
The UK user pays the online marketplace provider, Business O, a £20 delivery fee and had already paid an annual £100 subscription fee to access the specialist marketplace.
As a result of the transaction the Avalonian user pays a £30 commission to the marketplace in addition to the £10 listing fee and £190 annual membership fee that was already due to Business O.
The revenues arising in connection with this transaction for Business O are £50, made up of the £30 commission and the £20 delivery fee.
Other revenues arising in connection with the marketplace total £300.
The Digital services revenue will be £350
In determining the UK digital services revenue, the 5 cases must be considered.
Case 1
There is a marketplace transaction. The revenues arising in connection with the transaction are £50.
As a UK user is a party to the transaction, the revenues will fall within Case 1 and the whole of the £50 will be UK Digital Services Revenue. This is the case even though £30 of the revenues were paid by a non-UK user
The other revenues are not in connection with the transaction and are not considered further by case 1.
Case 3
Although Business O has received £10 of revenues in connection with online advertising for the table (a particular thing) offered for sale on the online marketplace it was not advertised by a UK user. There is therefore no revenue in case 3.
Case 4
Business O does not receive any online advertising revenues so there are no revenues within Case 4.
Case 5
Of the £350 digital services revenue £50 has been considered under cases 1 to 4 above.
Of the remaining £300, the only revenues arising in connection with a UK user are the £100 annual subscription paid by the UK user. The remaining revenues are in connection with non-UK user.
In total Business O will have UK digital services revenue of £150