The digital services tax has raised almost £360mln from a number of US tech giants including Amazon, Google and Apple in its first year, more than most have been paying in corporation tax.
A National Audit Office (NAO) report has found the levy, which was introduced in April 2020 and imposes a 2% charge on gross revenues, made 30% more than the government had forecast in 2021.
The government, which believes the tax could cumulatively bring in more than £3bn by 2024-25, outperformed its 2020-2021 target of £275mln because of the online sales boom during the pandemic.
The tax is targeted at firms with worldwide digital revenues over £500mln and with revenues derived from UK users of over £25mln.
Tech giants such as Amazon, Google and Meta have historically paid relatively little corporation tax in the UK because because they typically ensure their British operations make very little profit, instead funnelling earnings through low-tax jurisdictions such as Luxembourg and Ireland.
Concerns have risen in recent years that the existing international tax system does not properly capture the digitalization of the economy.
To address this, the OECD has proposed that companies should pay some of their income taxes where their consumers are located, referred to as Pillar One proposals.
About half of all European OECD countries have either announced, proposed, or implemented a digital services tax with the UK’s 2% tariff at the lower end of the scale.
But because these taxes mainly impact US companies and are thus perceived as discriminatory, the US has responded with retaliatory tariff threats.
Austria, France, Hungary, Italy, Poland, Portugal, Spain, Turkey, and the UK have all implemented a digital services tax, while Belgium, the Czech Republic, Denmark, and Slovakia have published proposals to enact a charge.
Latvia, Norway, and Slovenia have either officially announced or shown intentions to implement a digital tax.
The UK government has not named any businesses that are liable for DST, however businesses including Amazon, Google, Apple and eBay have publicly acknowledged liability for DST.