DST43300 - Similar DSTs

The cross-border relief applies when the revenues from the transaction are (or would be) subject to a foreign tax which is similar to the UK DST.

HMRC will interpret whether a foreign tax is similar to the UK DST by looking at the essential nature and character of the foreign tax in question. Importantly, the statutory test is not that the foreign DST is identical to the UK DST.

It is a test of the objectives of the tax, rather than the detailed mechanics involved in achieving those objectives. The following factors are not exhaustive, and should not be taken to be definitive, but provide an indication of the level at which HMRC will make that judgement:

  • whether the tax is levied on gross revenues
  • whether the tax is calculated on the revenues that are derived from users in that territory
  • whether the tax applies to broadly similar services based on a similar policy rationale
Foreign taxes HMRC believes are similar to the UK DST

The following countries have taxes that are considered to be similar to the UK DST for the purposes of cross-border relief:

  • France

  • Italy

  • Spain
  • Turkey

HMRC will keep this list under review and will consider the case from customers for the taxes from other countries to be included.

The Malaysian Service Tax on Digital Services by Foreign Service Providers had been included on the list of foreign taxes HMRC believes to be similar to the UK DST between July 2020 and 14th June 2022. After further review, the Malaysian Service Tax on Digital Services by Foreign Service Providers is no longer considered to be similar to the UK DST for the purposes of cross-border relief. Any claims for cross-border tax relief made before 14th June 2022 related to the Malaysian Service Tax on Digital Services for transactions will be honoured. No new claims for relief relating to this tax will be accepted.

Example A

A UK user buys a table on an online marketplace from a user based in Avalon. The user pays the online marketplace provider, Business O, an annual £100 subscription fee. As a result of the transaction the Avalonian user pays a £30 commission fee to Business O in addition to its £200 annual membership fee.

Business O’s revenues from the marketplace transaction are the £30 commission. All of the revenues from the marketplace transaction will be UK digital services revenues.

The subscription and membership fees do not arise in connection with an individual transaction, online advertising or from listing particular items so do not fall within cases 1 to 4. They will consequently fall under the general rule in Case 5. The £100 subscription fee arises in connection with a UK user so the £100 will be UK digital services revenues. The £200 membership fee does not arise in connection with a UK user so is not taxable.

Avalon has a Digital Services Tax which is similar to the UK DST. The revenues from the transaction arise from a relevant cross border transaction.

Business O can make a claim for cross border transaction relief. If it makes the claim the UK digital services revenue from this transaction will be reduced to £15, being half of the £30 commission.

The £100 subscription fee paid by the UK user does not qualify for relief because it is not revenue relating to a marketplace transaction.

Example B

A UK user rents office space in Avalon on an online marketplace. The office is owned by a Bordurian user.

As above, Avalon has a similar DST to the UK DST. Borduria has not enacted a DST.

As the relief applies when the foreign user is in a territory which charges a DST the revenues from the transaction do not arise in relation to a relevant cross border transaction and are not eligible for relief.