THE UK GOVERNMENT has announced plans for a Digital Services Tax aimed at online companies trading in the UK with a turnover of more than £500m per year.
The tax, levied at two per cent of UK-derived revenues, was unveiled by Chancellor Philip Hammond during the Budget on Monday and is intended to raise around £400m from companies operating as search engines, social media platforms, and online marketplaces. The tax will be introduced in 2020.
"We will now introduce a UK Digital Services Tax.— HM Treasury (@hmtreasury) 29 October 2018
...It will be carefully designed to ensure it is established tech giants - rather than our tech start-ups - that shoulder the burden of this new tax." #Budget2018 pic.twitter.com/h2hKxMrO1Y
It is aimed, Hammond said, at "established tech giants" rather than startups, principally Amazon, eBay, Facebook and Google. The tax would only apply to profitable companies, but could be abolished if members of the Organisation for Economic Co-operation and Development (OECD) can agree a formula for taxing internet giants.
"The rules have simply not kept pace with changing business models and it's clearly not sustainable, or fair, that digital platform businesses can generate substantial value in the UK without paying tax here in respect of that business," said Hammond.
"We will consult on the detail to make sure we get it right, and to ensure that the U.K. continues to be the best place to start and scale-up a tech business."
Hammond announces that the Government "will introduce a UK digital services tax", paid by companies that generate at least £500m in global revenues. Will come into effect in April 2020. Emphasises it is "not an online sales tax", as that would be paid by consumers #Budget2018— Luke Tugby (@LukeTugby) 29 October 2018
The Digital Services Tax meant to show UK "serious" about business tax reform. But exceptions and clarifications suggest govt wants to raise £ only from big unpopular tech firms, leaving consumers & anything popular & tech-related alone. Not sure experts wd call that serious.— Stephanie Flanders (@MyStephanomics) 29 October 2018
However, Facebook and Google could plausibly argue that they operate primarily in the online advertising space, rather than social media (Facebook) and search engines (Google). And the move could also provoke a response from the US government, given that it would exclusively target US companies.
"Given the dominance of the US tech giants, it is hard to see the Trump administration taking kindly to the digital sales tax as the UK sets out its stall for the best possible trade deal with the US," Dan Neidle, a tax partner at law firm Clifford Chance told the BBC.
It could also a rethink by US internet giants over their investments in the UK. Google, for example, is currently spending £650 million on a new headquarters in Kings Cross, London, which will have room for 4,500 employees. The average salary at Google in the UK, furthermore, is said to be around £160,000.
The companies targetted by the tax have yet to issue a formal response to the tax initiative, although shares in Amazon, Google and Netflix all traded lower on US stock exchanges following the announcement - investors taking in the suggestion that the companies could be in line to pay higher tax bills in the future.
It comes after a similar initiative was put forward by France's President Macron as a means of helping to make good a large shortfall in European Union budgets when the UK formally leaves the EU. At the moment, the proposal for a three per cent levy is being blocked by a number of countries who claim that it would not raise anywhere near enough and that it could end up costing more to collect than it raises. µ
'Some of us like the misery'
That'll surely affect its credit score