UK Digital Services Tax generates GBP567 million surpassing Government forecasts

Freedom of information (FOI) data obtained by DLA Piper reveals that the UK government collected GBP567 million in Digital Services Tax from major tech companies in 2023. This marks a notable increase from the GBP380 million collected the prior year and dramatically surpasses the Government's initial forecast of GBP465 million it made in 2020 when it launched the tax. 

Introduced in April 2020, the Digital Services Tax targets multinational enterprises that derive revenue from providing social media services, search engines, or online marketplaces to UK users. Under the tax, companies with global revenues exceeding GBP500 million and more than GBP25 million derived from UK users are subject to a 2% tax on their UK-generated revenues. The first GBP25 million of revenues from UK users remains exempt from this tax.

The UK's success in collecting revenue from the tax comes at a time when other countries, such as Canada, are also looking to introduce similar taxes. However, the tax remains contentious, with the US claiming it is discriminatory against many of the tech giants that are based there. The issue of where multinational companies should be taxed has been the subject of global negotiations at the OECD, which aim to achieve a multilateral solution to the problem of taxing cross border digital businesses as part of the Pillar One talks.

A separate agreement between the US Trade Representative and countries that have implemented digital services taxes, designed to stave off a trade war over the issue, is set to expire next month.

Matt Davies, Tax partner at DLA Piper said “The success that HMRC has had in collecting Digital Services Tax will send out a clear signal to governments around the world that this is a viable and potentially lucrative revenue generator. As a result, it is important that the OECD reaches an agreement on Pillar One to avoid the continued proliferation of differing DSTs across the globe, which present tech companies with an administrative nightmare. With a short-term solution unlikely it is important for multinationals to seek out help with navigating the complex global technology tax environment that could potentially see them double taxed as a result of overlapping DSTs.”