UK to levy 2pc digital services tax against tech giants from 2020

30 Oct 2018214 Views

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Taxing times for digital giants as nations lose patience with out-of-date frameworks conceived in a pre-internet age.

The UK is to hit tech giants such as Google, Facebook, Amazon and Apple with a new digital services tax from 2020.

The 2pc tax, revealed in the latest UK budget, will target revenues earned in the UK by online players ranging from search engines to social networks.

‘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’
– PHILIP HAMMOND

The move will see the UK apply a digital tax against online giants ahead of the EU, which is mulling over the creation of a 3pc levy against digital players.

Do digital giants pay enough taxes?

There is considerable unease in the UK with regard to tech giants and the feeling that they do not pay enough taxes. Google, for example, reported £1bn in revenues in the UK in 2016 and a pre-tax profit of £149m.

“This will be a narrowly targeted tax on the UK-generated revenues of specific digital platform business models,” said the UK’s chancellor of the exchequer, Philip Hammond.

“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.” The tax will only apply to companies that generate more than £500m a year in global revenues.

The UK’s moves come amid strident efforts by EU countries such as France and Germany to apply a digital tax against tech giants. The European Commission (EC) is looking to raise €5bn a year through the introduction of a digital tax of 3pc on the revenues of tech giants, rather than their profits. The tax targets companies with worldwide annual revenues of €750m or more and that have EU taxable revenues of at least €50m.

Ireland, the Czech Republic, Sweden and Finland are joined at the hip in their efforts to thwart the EU digital tax proposal. Tech giants have also warned that the proposed digital services tax – which the Austrian EU presidency could approve by December – could see them taxed double for the same revenue.

The tax is to be applied to revenues from end-user targeted advertising, transmissions from data collected, and social networking that could lead to the supply of goods and services. Ireland stands to lose up to €160m a year in lost tax revenue if the EU presses ahead with the new digital tax plans.

Many countries are looking at overhauls of their corporate tax systems due to the increased globalised nature of tech companies and out-of-date tax frameworks that were conceived in a pre-internet age. France, for example, is attempting to introduce a revenue tax that makes it harder for US tech giants to cut tax bills by channelling profits between countries.

This comes in the wake of major developments on the taxation front, most notably in 2016 when the EC ordered the Irish Government to retrieve €13bn, claiming that Apple avoided paying what it owed thanks to alleged sweetheart deals.

Editor John Kennedy is an award-winning technology journalist.

editorial@siliconrepublic.com