Big tech is hit by British tax on digital services

Commonly seen as a tech-friendly hub, Britain is now targeting the likes of Alphabet Inc. and Facebook Inc. by introducing a digital services tax, joining the growing chorus against cash-rich tech giants.

Chancellor of the Exchequer Philip Hammond unveiled the measure in his autumn budget in London. He said the tax, which aims to raise about $500 million a year for the government, was designed to hit the largest internet businesses — not consumer or internet start-ups.

The introduction of a digital tax makes the U.K. government something of a front-runner. The European Commission is proposing a digital tax on revenue that tech companies make from areas such as ads and data, but commission members have yet to agree on terms.

“We will consult on the detail to make sure we get it right, and to ensure that the U.K. continues to be the best place to start and scale up a tech business,” Hammond said. “It will come into effect in April 2020.”

The U.K.’s tax will be aimed at big tech, affecting companies that were profitable and with annual revenue exceeding about $640 million. Although a temporary measure, it follows the chancellor of the exchequer’s comments during a speech at the Conservative Party conference Oct. 1 that the U.K. would “go it alone” if a European Union version of the tax continues to stall.

Representatives for Alphabet’s Google, Twitter Inc. and Facebook did not reply to requests for comment.

Tech companies have been busy expanding in the U.K. in a bid to harness its highly skilled workforce. Alphabet’s Google is among a host of major tech companies including Snap Inc. and Apple Inc. that are doubling down on expanding their London offices, despite the uncertainty around the U.K.’s exit from the European Union.

Tension has also continued regarding how much tax these companies pay in Britain. Amazon.com Inc.’s U.K. business saw its 2017 corporate tax bill drop by about 40%, even though its profit there tripled.