»Ê¹ÚÌåÓýapp

Having identified the costs in the consolidated group accounts that can in principle be considered, the next step is to identify the proportion of these costs that relate to the DST revenues. »Ê¹ÚÌåÓýappse are the costs that are attributable to providing the digital services activity to UK users, or in other words the costs incurred in earning the UK digital services revenues.

»Ê¹ÚÌåÓýappre will be some expenses that are directly attributable to providing the digital services activity to UK users and can be identified as such. »Ê¹ÚÌåÓýappse should be deducted from the DST revenues. »Ê¹ÚÌåÓýappse might include costs like:

• Delivery expenses in relation to fulfilling orders on an online marketplace
• Traffic acquisition costs (TAC) relating to advertising at UK users
• Marketing costs and other costs of expanding the UK user base

»Ê¹ÚÌåÓýappre are likely to be other operating expenses where it is more difficult to identify the cost that relates to providing the digital services activity to UK users. This is most likely to be the case for groups that have a closely integrated business which consists of both digital services activities and other online services. »Ê¹ÚÌåÓýappse businesses will often generate efficiencies and synergies through operating a shared platform. »Ê¹ÚÌåÓýapp costs relating to this platform, including expenses like platform maintenance and improvement costs, research and development expenditure and staff costs in relation to programming and regulating content on the platform may well be shared costs which relate to both activities. This is equally relevant where a group has more than one type of digital services activity.

Similarly, many businesses will operate a single platform that serves users in the UK and elsewhere. In these cases, costs are likely to be incurred centrally and relate to the global or regional user base.

Only the costs that are attributable to the earning of UK digital services revenues can be taken into account in the operating margin calculation. Businesses can deduct an appropriate proportion of central costs where the costs can reasonably be considered to have been incurred in the course of providing the digital services activities giving rise to UK digital services revenues

This requires the business to determine the proportion of the expense that relates to the DST revenues. »Ê¹ÚÌåÓýapp legislation sets out that businesses should determine this on a just and reasonable basis.

Whether a basis is just and reasonable or not will depend on the particular facts and circumstances. »Ê¹ÚÌåÓýapp method should reflect the relative profitability of the activities and the markets to the business.

In making this determination the business should consider factors such as:

• Whether management accounts can provide a reasonable reflection of the operating margin of different activities or markets
• Whether the business already identifies the operating margin of different activities or markets, for instance through cost centres
• »Ê¹ÚÌåÓýapp relative revenues of each activity
• »Ê¹ÚÌåÓýapp relative revenues connected to UK users compared to digital revenues
• »Ê¹ÚÌåÓýapp proportion of direct and identifiable costs which relate to DST activities compared with other activities

This list is not intended to be exhaustive and factors will be more reliable in some cases than others. Businesses should consider the facts and circumstances of their business and determine what factor(s) provide a fair and reasonable reflection of the operating margin of providing the DST activity to UK users.