Britain To Target Online Companies With New 'Digital Services Tax'

Britain said it would tax the revenue that online platforms such as Google, Facebook and Amazon make in the country to update a system that had not kept pace with changing digital business models.

"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," finance minister Philip Hammond said in his annual budget speech on Monday (29).

The tax will be designed to ensure established tech giants, rather than start-ups, shoulder the burden, Hammond told parliament.

The Treasury said profitable companies would be taxed at two per cent on the money they make from UK users from April 2020, and the measure was expected to raise more than £400 million ($512m) a year. The tax will be based on self-assessment by the companies.

Big internet companies, which say they follow tax rules, had previously paid little tax in Europe, typically by channelling sales via countries such as Ireland and Luxembourg which have light-touch tax regimes.

Google, Facebook and Amazon have changed the way they account for their activity in Britain in recent years.

In 2016, Facebook, for example, starting recording revenue from its UK customers supported by local sales teams and subjecting any taxable profit on the income to UK corporation tax.

However, a number of offsets meant Facebook had a tax charge for 2016 in Britain of £5.1 mn compared with £4.2m for 2015.

Slow International Push

The tax will target platforms such as search engines, social media and online marketplaces, Hammond said, and it will be paid by companies that generate at least £500 mn a year in global revenue.

Britain had been leading attempts to reform international corporate tax systems, Hammond said, but progress had been painfully slow and governments could not simply talk forever.

Clifford Chance tax partner Dan Neidle said the radical nature of the proposal clearly showed that Britain was becoming frustrated with the slow pace of change in global tax laws.

"The UK is running ahead of every other country except Spain," he said.

But given the dominance of US tech giants, president Donald Trump's administration may not appreciate the proposal at a time when Britain is trying to agree on new trade deals.

The European Commission proposed in March that EU states would charge a three per cent levy on digital revenues of large firms like Google and Facebook.

But the plan is opposed by smaller states like Ireland, which fears losing revenues, and by Nordic governments which think the tax could stifle innovation and trigger retaliation from the United States - the home to most of the firms which could be hit by the proposed tax.

France, which supports a new levy, put forward last month the idea that such a tax would have a "sunset clause", meaning the tax would end when a global solution is found.

Hammond said on Monday that if a global solution emerges, Britain would consider adopting this instead of its levy.

But in the meantime, the government would consult on the detail to make sure it got its plan right, and then ensure Britain remained one of the best places to start and scale up a tech business.

Amazon and Netflix declined to comment.

Facebook said it looked forward to receiving more details about the proposals, and until then it was too early to comment ($1 = £0.7814).

Reuters