DST43200 - Cross Border Relief Claim
When a transaction is concluded on a marketplace, the revenues the marketplace earns from that transaction will arise in connection with more than one user. Put simply, there will be both a seller and a buyer involved.
Where the transaction is cross-border this means the revenues may be linked to both a UK user and a non-UK user. In this situation, all the revenues from the transaction will be UK digital services revenues.
However, some relief is available where the revenues arising from the transaction are also subject to a foreign DST charge.
How to obtain the relief
The relief operates by way of a claim. The group should make a claim for relief in its DST return.
Quantum of relief
Where a valid claim has been made, the UK digital services revenues from the qualifying cross-border transactions will be reduced by 50%.
If the group elects to calculate its DST liability under the alternative charge calculation, the group must also disregard 50% of any relevant operating expenses which are incurred in respect of qualifying cross-border transactions. This is to ensure the operating margin is not distorted.
Conditions for the relief
Relief is available in respect of relevant cross border transactions.
A relevant cross border transaction is a marketplace transaction where:
- where a foreign user is a party to the marketplace transaction
- all or part of the revenues arising in connection with the transaction are or would be subject to a foreign DST charge
A foreign user is a user who it is reasonable to assume is normally located (or established) in a territory outside of the UK. This is still the case for overseas property transactions, relief depends on the territory of the foreign user not where the overseas property is situated.
A foreign DST charge is a charge in the foreign user’s territory which is similar to the DST.
It is important to note the relief only applies to the revenues from the specific transactions which qualify for the relief. It does not apply on a more general basis.
Meaning of “are or would be subject”
HMRC recognises that some foreign DSTs apply a different approach to the UK DST to identifying the taxable revenues, for instance some DSTs calculate these by multiplying the total of the taxable revenue stream by the proportion of the business’ total users in that territory. In such cases, the foreign DST may not require the business to identify individual transactions so there may be difficulties attributing the foreign tax to each transaction.
This would present challenges proving the same revenues have been subject to a foreign DST charge. The inclusion of “would be” means the provision is intended to apply when the business is liable to a foreign DST and the transaction is included in the tax base of the foreign DST in a way that increases the charge of the business. It is not necessary to demonstrate how much foreign DST has been paid in respect of the individual transaction. However, the group must demonstrate that is has been subject to the foreign DST.