Britain’s Treasury chief on Monday unveiled a new tax on big Internet companies’ revenues, insisting it is time that the global tech giants with profitable business in the UK pay their fair share for public services.
British Chancellor of the Exchequer Philip Hammond made the announcement as he outlined his budget, explaining that while he preferred trying to find a global solution to address the borderless nature of the wealth of the likes of Google and Facebook Inc, negotiations with other countries had been too slow.
He said the tax would be “narrowly targeted” on the UK-generated revenues of specific digital platform business models.
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“The rules have simply not kept pace with changing business models,” Hammond said. “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.”
Companies typically pay their taxes where they are based, but while local governments can impose a sales tax on physical goods in shops and restaurants, that has not been the case with online service providers.
In the EU, foreign companies like Amazon.com Inc, Google and Facebook pay what tax they owe in the country where they have their regional base — usually a low tax haven like Ireland, so their business generates little to no tax revenue in countries, like the UK, where they have significant operations.
Hammond said the digital sales tax will be structured to apply to “established tech giants” rather than tech start-ups and was at pains to emphasize that it was “not a online-sales tax on goods ordered over the Internet.”
It would only apply to firms making ￡500 million (US$640 million) a year in global revenues.
The text will come into effect in April 2020 and is forecast to bring in ￡400 million a year, he said.
Dan Neidle, a partner at law firm Clifford Chance LLP, said the tax could chill innovation and, given the dominance of the tech giants in the US, would likely be met with a hostile reception by the administration of US President Donald Trump.
“For 100 years, businesses have been taxed based on where they are, not where their customers are,” he said. “There are many — particularly in the US — who will regard limiting that revolution to one particular sector as opportunistic, particularly when it’s a sector where the UK [and Europe as a whole] have conspicuously failed to create world-beating businesses.”
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