The UK is weighing the future of its Digital Services Tax (DST), under pressure from US trade threats. From the White House to the tech sector, the DST has been described as a discriminatory ‘tariff’ almost entirely targeting large US internet companies. No-one seems to have asked whether that’s actually true. New data obtained by TaxWatch show that nearly 40 percent of the companies subject to the UK DST are not headquartered in the US at all, contrary to claims made by politicians and the tech industry itself
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The UK’s Digital Services Tax (DST) may have had a stay of execution, but it’s still on the chopping block.
In February 2025, Donald Trump’s administration announced potential tariffs against foreign countries with DSTs: the flagship tax measure implemented by the UK and around 30 other countries to counteract the ability of online businesses to generate income from users and customers without the resulting profits being taxable where those users and customers are located.
Congress is now piling on the pressure. The US budget bill currently in the US Senate would authorise punitive additional tax rates on governments, companies and individuals from countries with DSTs, including the UK.1
The possibility of shrinking or abolishing the UK DST has, accordingly, formed part of high-level UK-US negotiations this year over trade and tariffs. Announcing a sectoral trade agreement with the USA on 8 May 2025, Downing Street insisted that “[t]he Digital Services Tax remains unchanged as part of today’s deal”. Twenty-four hours later, the Prime Minister was already walking this back. Asked if he could guarantee that the deal would not mean any changes to the DST, he said: “[o]n digital services, there are ongoing discussions, obviously, on other aspects of the deal.”
A tax or a tariff?
Sometimes dubbed the ‘Google Tax’, the UK’s DST is a 2% tax on the revenues attributable to UK users of around fifty of the very largest search engines, social media platforms and online marketplaces: those with UK revenues of over £25 million, or global income of over £500 million. The DST generated a tidy £808 million of tax revenues last year, forecast to rise to £1.2 billion by 2029/30.
The White House justifies its war against DSTs on the basis of “America’s digital economic dominance”. Because most DSTs apply only to companies with a very high turnover, and focus on service types which US firms have historically dominated (online advertising, search, social media, streaming, marketplace intermediation), the US claims that DSTs therefore “discriminate against U.S. companies”.
Perhaps more surprisingly, many tax and political commentators in the UK have broadly agreed with Trump’s characterisation.
Michael Devereux, Emeritus Director of the Oxford University Centre for Business Taxation, recently argued that the UK DST is effectively a tariff against the US – “a tax that falls primarily on revenues earned in the UK by giant US tech firms” – and should therefore be abolished if the UK is to oppose US tariffs.
Tax Policy Associates’ Dan Neidle put the point more pithily:
“The digital services tax kinda sorta is a tariff. In theory it applies to everyone. In practice, it’s almost entirely US businesses.”
UK media have largely repeated the same thing. Sky News’ report on the May 2025 US trade deal, for instance, described the UK DST as “mainly applying to US tech companies”. Politico went further, attributing the entirety of the UK DST’s tax take to “US tech giants”.
And of course the US tech sector has happily followed this line too. A spokesperson for the Information Technology and Innovation Foundation (ITIF) – a US thinktank supported by the largest US tech companies – told reporters:
“It is a distorted tax. It directly targets U.S. companies.”
(In response to TaxWatch, ITIF Associate Director Rodrigo Balbontin pointed to a 2021 US government trade investigation which cites “Statements by UK Officials [Which] Show that the Digital Services Tax Is Intended to Unfairly Target U.S. Companies”. Three of the four “UK Officials” cited, however – and the only three that mentioned US companies in their statements – are opposition Labour MPs including Jeremy Corbyn and Margaret Hodge, who had no power over the DST’s design or implementation).
Unlike trade tariffs, targeting a specific country obviously isn’t written into the DST’s formal design: any provider of in-scope digital services whose revenues are large enough, including UK-headed corporate groups, is liable for the DST. But does the DST de facto target US big tech thanks to its large revenue threshold and selection of qualifying activities?
TaxWatch asked HMRC where the corporate groups liable for the UK DST are headquartered.2 HMRC wouldn’t provide a full geographical breakdown in case it identified individual companies, but did provide figures broken down between the US and elsewhere.
These show a different picture to that painted by the White House and media reports:
- 37 percent of the companies or corporate groups assessed to be liable for the UK’s DST are not headquartered in the US
- 34 percent of those which submitted a DST return in 2023/24 (the latest year available) are not headquartered in the US
- 28 percent of those which paid a DST liability in 2023/24 are not headquartered in the US
Old-time internet
Of course, we don’t have figures for the respective amounts of DST tax liabilities attributable to US and non-US headed groups. It may be that US-headed groups still pay an outsize proportion of the tax. But that will be in proportion to their larger revenues. No-one suggests that a flat-rate tax discriminates against taxpayers that make more taxable profits or revenues. instead, the US argument has always been that DST design features – primarily the revenue threshold and the selection of in-scope activities – have substantially limited the DST to US tech giants. The figures from HMRC don’t bear this out: there are clearly now a significant number of non-US groups that meet the UK DST’s revenue threshold and activities definition. Notably, the data we received shows that the number of corporate groups having to pay UK DST is rising overall: from 18 in 2020/21, to 22 in 2022/3, and 25 in 2023/4. It must therefore be becoming less targeted over time on the cluster of dominant US tech giants.
Why doesn’t public discussion of the DST reflect the reality of these figures?
The geographical breakdown above hasn’t been published before. The near-total media and political consensus that the DST falls almost wholly on US-headed companies seems to be based instead largely on an old report and a slightly nostalgic view of what the online world is actually like. With only a few exceptions, we can’t see from tech companies’ financial accounts whether or how much DST they pay. HMRC doesn’t release the names of taxpayers, whether human or corporate. In the first and only year (2020/21) for which we have broken-down figures from the National Audit Office, 90 percent of DST revenues came from only five corporate groups: not named in the NAO’s report, but widely believed to be the ‘Big Five’ US internet giants.
Even in 2020, though, the internet was already changing. Five years later, some of the biggest online marketplaces and content providers used by UK consumers are now those headquartered in China, Singapore or related financial centres: from Shein and Temu to ByteDance/TikTok. US-headed internet giants are still huge, but the real-world geography of the online world is shifting. And there are also UK-headquartered online marketplaces, like Auto Trader Plc, which are now big enough to fall into scope of the UK DST.
More than a hunch
There are, of course, larger ‘tax design’ arguments about the DST. Discussing with TaxWatch the new figures from HMRC, tax lawyer Dan Neidle argued that the UK simply shouldn’t have a tax solely targeting online service providers:
“The DST is unprincipled because it applies to one sector where the UK happens not to be very competitive, and doesn’t apply to others (pharma, media, computer games) where the UK is competitive….Trump is wrong about almost everything on tax, but he’s right that the DST behaves like a tariff.”
This is a principled position. But DSTs were a response to a tax challenge specifically posed by online services: their ability to serve markets without the territorial presence that our outdated international tax rules require. DSTs were originally intended as a stop-gap, to be replaced by new multilateral rules negotiated under the OECD for re-apportioning the profits of multinational groups. Negotiations finished in October 2021, but it now looks unlikely that the OECD rules will ever come into force, thanks to implacable US opposition to them too. In their absence, ditching DSTs under US pressure would return a tax advantage to some of the internet’s largest and most controversial companies. Ironically, the new figures published here strongly suggest that cancelling the DST would in part benefit Chinese and other non-US internet giants — perhaps even some of those exporting Chinese goods into the US, which the Trump administration wants to counter with tariffs to protect American firms.
The UK DST undoubtedly still has design problems: particularly the fact that online marketplaces can pass it on to sellers or their customers, while being exempt from charging it on their own direct sales to consumers. A larger redesign – perhaps lowering the revenue threshold, reducing the current DST exemption for the first £25m of UK-linked revenues, and adding new categories of activity such as AI services – could also rebalance its scope away from US companies. But the figures released by HMRC show that this rebalance is already underway.
The UK’s DST is now a pawn in economic dealmaking that may have major impacts on UK jobs, prices and living standards. Debating its merits and faults needs to be based on data, not assumptions.
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DST statistics received from HMRC, May 2025
As of 2025, 51 corporate groups have been judged after detailed HMRC assessment to be in scope of UK DST:
| Headquarters jurisdiction | Number |
|---|---|
| US | 32 |
| Non-US | 19 |
| Total | 51 |
41 of these groups submitted a DST return for tax year 2022/23, and 41 for 2023/24: 3
| Headquarters jurisdiction | Number (2022/23) | Number (2023/24) |
|---|---|---|
| US | 28 | 27 |
| Non-US | 13 | 14 |
| Total | 41 | 41 |
22 corporate groups paid a DST liability in 2022/23, and 25 groups paid a DST liability in 2023/24.4 For 2023/24:
| Headquarters jurisdiction | Number (2023/24) |
|---|---|
| US | 18 |
| Non-US | 7 |
| Total | 25 |
(HMRC did not break down these groups for 2022/23 on the grounds that it risked identifying individual taxpayers).
Notes
[1] Though widely reported as a Trump initiative, in fact Trump’s DST threats revive a 2021 Biden administration policy of tariffs against the UK and five other countries with DSTs, suspended during OECD negotiations.
[2] We considered whether the headquarter jurisdictions identified here might be for intermediate holding companies of larger groups, outside the jurisdiction of the group’s apex company. However, the UK DST defines the revenues within its scope as those of the whole of each corporate group up to its apex company, in accordance with GAAP accounting definitions.
[3] Some groups now assessed to be liable for the DST in 2024/25 were not liable in 2023/24.
[4] HMRC told us that “The difference between the number of groups that have submitted a return for 2022/23 and 2023/24 and the number of groups that have paid a liability in those years is partly due to a timing difference between the payment deadline and the period of assessment, and a number of groups that have self-assessed that they do not have a liability to pay.”
