Bri­tain to tar­get on­line gi­ants with new ‘Dig­i­tal Ser­vices Tax’

The Gulf Today - Business - - INTERNATIONAL -

LON­DON: 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.

Amazon was down 9 per cent, touch­ing six-month low, while Google was off 5.5 per cent and Facebook was trad­ing lower 3.5 per cent.

Net­flix and Ap­ple, the oth­ers in the so-called FAANG group of stocks, were down 8 per cent and 3.6 per cent re­spec­tively.

“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.

‘Dig­i­tal Ser­vices 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 2 per cent on the money they make from UK users from April 2020, and the mea­sure was ex­pected to raise more than 400 mil­lion pounds ($512 mil­lion) a year. The tax will be based on self-as­sess­ment by the com­pa­nies.

“A tax take of 400 mil­lion pounds or so might seem a small num­ber when you con­sider that Amazon alone is ex­pected to post sales of $233 bil­lion this year. But the worry for the tech gi­ants, and their share­hold­ers, is that this is the peb­ble that starts an avalanche of taxes from in­ter­na­tional gov­ern­ments,” Har­g­reaves Lans­down an­a­lyst Laith Kha­laf said.

IN­TER­NET 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.

Both Google and Facebook have changed the way they ac­count for their ac­tiv­ity in Bri­tain.

In 2016, Facebook started 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 mil­lion pounds com­pared with 4.2 mil­lion pounds for 2015.

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 mil­lion pounds 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 U.S. tech gi­ants, Pres­i­dent Don­ald Trump’s ad­min­is­tra­tion may not ap­pre­ci­ate the pro­posal at a time when Bri­tain is try­ing to agree new trade deals. The Euro­pean Com­mis­sion pro­posed in March that EU states would charge a 3 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.

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