DST12500 - Online Service Examples

Example A

Group A is a well-known manufacturer of agricultural machinery. Group A provides an internal search directory for all the businesses in the group. As the service is not being performed on behalf of third-party users and does not generate third party revenues, it is not a service for the purposes of DST and does not need to be considered further.

Example B

An online newspaper provides a facility for users to comment on the published articles. There is an active and engaged user base where users exchange views on the topics discussed.

It is established that the newspaper publisher provides the facility to increase user engagement towards the digital journalistic content. The comments facility has no distinct purpose and the business has no plans to develop or monetise this facility independently from its broader plan to expand the newspaper.

While there is an active community of users, most users visit the website to consume the journalistic content and the opportunity to comment on articles is clearly a secondary driver.

Based on the available facts, the comments facility is unlikely to be a separate service to the wider provision of the online newspaper and does not need to be tested individually to see if it is a digital service activity. The group should consider whether the online newspaper meets any of the relevant conditions.

Example C

Group C provides an online retail store which sells physical goods (which have already been purchased wholesale or manufactured by companies within Group C). It also operates an online forum. The forum is hosted in a separate section of the website and has a significant user base, many of whom use the forum independently of the other services provided by the business.

The forum has become well-known in its own right and many users associate the brand with the forum. The forum generates revenue for Group C through advertising revenue and helps to attract traffic towards the other services provided by the business (e.g. the online retail platform).

In this example, the forum is likely to be a separate online service. Group C will need to determine whether any DST digital service conditions are met (most likely a social media service) and the threshold conditions apply.

Example D

Group D manufactures collections of stamps for sale. The group launches a website which allows fans of the stamps to tell stories and share pictures of their collections and arrange to exchange stamps or organise meet ups. The website includes adverts for stamps Group D has for sale but does not include other advertising.

The website does not directly generate any revenues for the group and is provided to build brand recognition, increase sales of stamps and attract a new generation of stamp collecting fans. As it stands, the website is unlikely to be considered as a separate business service to the stamp collection manufacturing business. The purpose of the website is to market the group’s products and users would be unlikely to visit the website if it was provided on a standalone basis.

However, if the website were to gain popularity and recognition, it may become a substantive business service in its own right. Relevant considerations here will include whether the website begins to generate its own revenue, attract advertising income and other revenue streams from unrelated products. How users view the website will also be a consideration, such as if they see it as a broader service or the main forum for stamp collectors irrespective of whether they are manufactured by Group D.

Example E

Group E operates an online marketplace which allows users to buy plants from other users. Group E provides a delivery service. Customers have the option to pay Group E to deliver their orders or alternatively can arrange to collect the plants directly from the user.

The delivery service is likely to be a part of the online marketplace service rather than a separate online service. It provides a supportive function to the online marketplace business. It is not provided separately to or independently from the online marketplace.

Example F

Group F runs its own luxury spas. It sells packages through its online website. On its online shop, it offers exclusive beauty products from a third-party business it has a long-term relationship with. Group F receives a commission for the beauty products sold through the website. Customers can, and frequently do, use the website solely to buy the beauty products without buying other services. The sales of beauty products have taken off in recent years and Group F’s commission income is now a significant revenue stream.

Based on these facts, it is likely the selling of the beauty products is a separate online service. Customers buy goods independently of the spa packages and the retail business generates significant and distinct revenues for the group. The nature of the services is provided is also quite different, albeit they are complementary. The group will therefore need to consider whether revenue received from the service meets the criteria to be revenue from a digital services activity within the meaning of the legislation. From the facts available it does not appear that this service is providing a social media, internet search engine or online marketplace service.

Group F subsequently begins to sell beauty products from another business. The sale of these products will just be part of the existing online service which sells beauty products. This is because the activity (the selling of beauty products) is the same.

Example G

Group H operates a large online-only pharmacy. It enters into an agreement with a major multinational group (Group G) which operates bricks and mortar pharmacies across the UK and sells Group G’s branded products through its online store. It purchases these products for onward sale as part of the agreement.

After a period of successful expansion, Group H have developed significant logistics and distribution expertise. It decides to enter into two further agreements with two large pharmacies, Group K and Group L to run their online operation. The group provides the website and a sophisticated platform which manages orders and stock management in real time. The service offered is tailored to the needs of each client.

The group is providing three different online services. Although the activities involved are similar, the managing the logistics on behalf of other businesses is clearly a separate online service to online retail. The services provided to Group K and Group L would also be regarded as distinct online services. The services provided are tailored to each client and they involve the operation of two unconnected online platforms. They are also both large contracts so would both be viewed as substantive online services.

Example H

Group M is a well-known review site for independent food producers in the UK. It has millions of users visiting its website per month. Group N is a multinational foods business which is looking to expand its specialist marketplace in the UK. As Group N is relatively unknown in the UK, it decides to approach Group M. It proposes to operate the marketplace under Group M’s brand and pay a licensing fee for the use of its brand and user traffic.

In this example, Group N is carrying out an online service as it operates the online marketplace. It is possible Group M is also providing an online service. It will be necessary to establish the precise nature of the service it is providing. On the facts provided, it is likely the service is the licensing of the brand and the user traffic to Group N. Group M will therefore need to test whether this service meets the definitions of a DST activity.