UK set to impose new “tech tax” on Silicon Valley giants

Enlarge / LONDON – Chancellor of the Exchequer Philip Hammond poses with the budget box at 11 Downing Street before the announcement of the Autumn Budget Statement in the House of Commons on October 29, 2018. Wiktor Szymanowicz / Barcroft Media via Getty Images

Britain's top financial official has included a new "tech tax" in the country's latest budget that would affect some of the worlds largest firms, including Apple, Google, Facebook, and others.

Called the "UK Digital Services Tax," Chancellor of the Exchequer Philip Hammond said that this new tax would be "narrowly targeted" to go after the "UK-generated revenues" of these firms. The tax appears to attempt to legally offset efforts by numerous tech and other corporate giants to drastically minimize their tax burden in the United Kingdom and elsewhere.

In 2012, a British parliamentary committee chided executives from Amazon, Google, and even Starbucks for employing such tactics. Margaret Hodge, then the public accounts committee chair, slammed Google's Northern European operations chief, saying, "We're not accusing you of being illegal; we are accusing you of being immoral."

It is not entirely clear how exactly the new "UK-generated revenues" will be measured—the new 2018 budget states that the tax would "apply to revenues from those activities that are linked to the participation of UK users."

"It will be carefully designed to ensure it is established tech giants—rather than our tech startups—that shoulder the burden of this new tax," Hammond said in a Monday speech before the House of Commons.

"It is important that I emphasize that this is not an online-sales tax on goods ordered over the Internet. Such a tax would fall on consumers of those goods—and that is not our intention. The Digital Services Tax will only be paid by companies which are profitable and which generate at least £500m a year in global revenues in the business lines in scope."

Hammond also noted that the tax is scheduled to go into effect in April 2020 and is expected to raise £400 million per year, or more than $512 million.

Ars contacted Apple, Google, Facebook, Twitter, Tesla, Amazon, Uber, and Airbnb to see if they would attempt to oppose the measure.

Only one company responded.

"Thanks for your email, but we've no comment on the digital services tax," Tom Parker, an Amazon UK spokesman, emailed Ars.

Meanwhile, Samuel Brunson, a tax law professor at Loyola University Chicago, told Ars that companies likely would not be able to "minimize" a user's residency for tax purposes—but it may not necessarily be a huge windfall just yet.

"Because so many of these companies are based in the US, the UK right now has a limited ability to tax them," he emailed.

"Facebook, for instance, mostly doesnt get its revenues directly from users. And if an advertiser pays Facebook to show ads to its UK users, that may not be UK-source income, so the UK may not be able to tax it under current rules. Imposing this tax, then, lets the UK reach some revenue that is outside its traditional scope. It makes sense; digital services are become a huge financial force, but the broad contours of our international tax system was designed when physical products and in-person services dominated. This tax doesnt fully capture the 21st-century economy, but it starts to at least recognize it."

Original Article


Ars Technica