U.K. will deploy the digital tax first in its class
U.K. will deploy the digital tax first in its class
LONDON: The United Kingdom said it will move forward with plans to introduce a first-class tax on revenues generated locally by large technology companies, the most concrete attempt so far by an industrialized nation to rewrite the global tax code for the digital age .
The new tax comes as dozens of other countries are contemplating similar taxes on digital services sold by companies such as
These governments hope to capture more revenue from such services as economic activity changes more and more online.
The question is how governments collect taxes from a handful of technology companies, many of them based in the United States, which have become global giants of digital consumer services. As they grew, governments outside their local jurisdictions have struggled with the digital nature of their products to create an appropriate level of local taxes to raise.
The big American technology companies have been criticized for reporting relatively little of their profits in local jurisdictions, which opens them up to scrutiny. An international effort among rich nations to help standardize how and where to tax these digital services has progressed slowly. On Monday, the United Kingdom said it could not wait. As part of his annual budget, he said he was moving forward with a plan to start a digital tax for large technology companies by the year 2020.
The government of Spain proposed a similar digital services tax this month, but that measure requires parliamentary approval.
The new US tax UU Press the big countries, including the US UU., To accelerate the global effort. The Organization for Economic Cooperation and Development, a forum of rich countries, has led the international talks on digital taxes.
Opponents of digital taxes, which include lobbyists for multinationals, say a patchwork of new rules that vary by country will hurt smaller companies. They say the initiatives could lead to double taxation of corporate profits that would stifle international trade and discourage investment.
The technology industry is opposed to the proposals. On Monday, after the United Kingdom announced its plan, the Information Technology Industry Council, a lobby group based in Washington, DC representing technology companies such as Google and Facebook, said that "impose A digital tax could create a chilling effect on investment in the United Kingdom. " and make it difficult for companies of all sizes to create jobs. "
The head of the US Treasury UU., Philip Hammond, said Monday that the tax will only go to large and profitable companies, with global revenues of at least £ 500 million ($ 641 million). The new levy would constitute 2% of the income of a company of this type in the United Kingdom. Mr. Hammond said he could eventually raise around £ 400 million annually.
The proposal would affect companies that generate revenue in the UK for services that include search engines, social networking platforms and online markets. That makes Google and Facebook ad sales businesses particularly vulnerable. The tax would not affect sales of digital music or movies.
For giants like the alphabet,
Amazon.com
Inc.
and Facebook, the U.K. tax would amount to a relatively small amount of additional tax. But it represents the first concrete step among several governments worldwide to increase the tax burden of these and other large global technology service companies.
"It's clearly not sustainable, or fair, for digital platform companies to generate substantial value in the UK without paying taxes here," Hammond said Monday. He said that while a global agreement "is the best long-term solution", progress has been "terribly slow". The United Kingdom said its new tax would only come into effect until a global solution is found, but Hammond said "we just can not talk forever."
The big technology companies of the United States have been the subject of intense scrutiny here for the amount of taxes they pay. Amazon UK Services Ltd., one of the UK's leading online retailer units, in 2017 reported revenues of £ 1.98 billion and profits in ordinary activities before taxes of £ 72.37 million, but paid only £ 1.7 million in taxes from the United Kingdom, according to Companies House. A corporate information registry.
The British affiliate of Facebook that year reported revenues of £ 1.26 billion and a gain of £ 62.76 million in 2017, paying £ 17.19 million in taxes. Google UK Ltd. for the year ended June 31, 2017, recorded revenues of £ 1.26 billion and gains in ordinary activities of £ 200.55 million. He paid £ 47.36 million in British taxes.
The spokespersons for Amazon, Facebook and Alphabet did not comment immediately on the new tax. Amid criticism of their tax practices, the three companies have said they pay their fair share.
Critics here also said that the British government measure could result in retaliatory taxes in the US. UU They also said that technology companies could simply pass the tax on to their customers.
The Treasury of the United States did not immediately comment on the new tax.
"This proposal could disproportionately affect US companies and, ultimately, end up interfering with US trade commitments," said Rufus Yerxa, president of the US National Council for Foreign Trade. UU "If enacted, this measure could also complicate the pressure of the United Kingdom to deepen trade relations between the United States and the US."
However, some smaller British technology companies welcomed the proposal as a way to be more competitive against the giants of Silicon Valley.
The United Kingdom said for the first time that it had a justification for a new tax in November 2017, arguing that users of digital services help the product that technology companies sell to advertisers and other customers. That principle It has influenced the rest of the European Union., which one You are working on your own tax proposal..
Inspired by separate proposals from the European Union to impose a tax based on the revenues of technology companies instead of their profits, South Korea, India and at least seven other countries in Asia and the Pacific are exploring new taxes. Mexico, Chile and other Latin American countries are also contemplating new taxes aimed at increasing the receipts of foreign technology companies.
The effort of the U.K. it underlines the complexity of such a tax. The Office of Budget Responsibility, the UK's fiscal regulator, said the Treasury's estimate of the amount of taxes the new tax will raise is highly uncertain. Among the questions that have not yet been answered about the structure of the new tax is whether it will be deductible from corporation tax, for example. The regulator also pointed to a number of ways in which the new tax could affect corporate behavior in an effort to minimize any liability, such as reclassifying income as income not covered by the tax.
However, the OBR said it is also possible that the tax on digital services will be a bigger money generator for the Treasury than its preliminary estimates suggest, given that online activity represents a growing part of the economy in general. .
-Estu Woo
Contributed to this article.
Write to Paul Hannon in paul.hannon@wsj.com and Nina Trentmann in Nina.Trentmann@wsj.com
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