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Budget 2018: Digital taxes

Tech giants targeted in £400m tax clampdown

Amazon parcels - Amazon website

The new tax is clearly directed at firms like Amazon


 

The Chancellor announced a crackdown on the US tech giants who have triggered controversy by paying minimal tax in the UK with a new “digital tax” targeted squarely at the likes of Amazon, Google, Facebook and Apple.

Hammond said the tax would be narrowly targeted at “the technology giants rather than tech start-ups’, would be introduced in April 2020 and is estimated to raise £400 million a year. It will amount to 2% of turnover. Spain is the only other country to impose such a tax, at 3% of turnover.

He said that the new tax would also only take in tech giants that were profitable. Hammond said the digital platforms had changed society “mainly for the better”.

But he said the tax rules had “not kept pace with changing business models”, and that it was unfair that such tech behemoths “can generate substantial value in the UK without paying sufficient tax”.

The Chancellor said he agreed that concerted international action would be the optimal way to tackle the problem, but that progress on such discussions was slow. “We cannot simply talk forever,” he told the Commons.

Only tech giants with £500 million of global revenues will fall into the Treasury’s net under the new digital tax, Hammond added.

His well-flagged move on the sector, which also includes majors like Netflix and eBay, saw the Chancellor also reserved his position on the new tax if negotiations on a concerted clampdown with the likes of the Organisation for Economic Cooperation and Development and the G20 bore fruit.

“We will consider adopting an alternative if one emerges,” he said. But he has emphasised the UK government’s determination to crack down on the multi-nationals, overwhelmingly based in the United States, before.

Hammond has said the UK government cannot stand by “looking as if we are being walked all over by the companies that are too big for us to control”.

Recently it was revealed that Facebook paid only £7.4m in UK corporation tax last year.

He told MPs yesterday: “We are serious about this reform. It’s only right that the global giants pay their fair share.”

Yesterday’s move comes amid rising criticism from UK bricks and mortar retailers that they are being undermined by the major tech players.

Chris Denning, head of international and corporate taxation at MHA MacIntyre Hudson, said that either the new tax runs the risk of US retaliation, or the UK may be seen as leading the way in taxing multinationals fairly.

“This tax is clearly aimed directly at US technology companies. When the news sinks in across the pond it could raise the possibility of retaliatory measures from the US government. Dragging the UK into an acrimonious quarrel with one of its largest trading partners is perhaps not what the Chancellor intends. 

“The other side of the argument is that the UK will be seen as leading the way, as with previous measures such as the diverted profits tax and the hybrid mismatch rules.

“Once the UK introduces the tax it is may be thought inevitable that other territories will follow. So any non-levelling of the playing field this may create from UK’s perspective will be hopefully short lived.”



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