From April 2020, Philip Hammond, UK chancellor, wants to introduce a digital services tax which will force technology giants like Facebook and Amazon to pay a lot more tax than they do. He said that start-ups won’t be targeted but these big companies as it is only unfair to let such huge profit-making firms function and pay only a small amount of tax. The European Commission and the 36-member OECD have been trying to come up with a plan for imposition of digital services tax on search engines, internet marketplaces and social media platforms. The proposed number is 2% against sales made by the firms in UK.
These companies currently pay taxes on UK profits, which is a lot lower than revenues. The Treasury estimates the generated amount to be £275m in 2019-20 which is again expected to rise to £370m the next year. The number will probably rise to £400m in 2021-22 and £440m in the following year. This tax will be imposed on firms that make profits amounting to a minimum of £500m per year in global revenue. Although Hammond didn’t specifically name any company, Facebook, Google and Amazon have been under heavy criticism for the relatively small tax they pay in the United Kingdom.
Julian David of TechUK contradicted Hammond’s promise to protect start-ups saying that keeping a profit threshold of £500m put small companies at risk too. This move could also mar UK’s reputation of being the best spot for investment or starting a tech business. In spite of the date of levying being forecasted as April 2020, the plan might fall through if Europe charges firms at their own digital tax of 3%. Zubin Patel of Deliotte said that the proposal in still under consultation. Until an international deal is reached, levy on UK sales of digital companies will be implemented. The OECD will provide updates on the plan in 2019 and intends to submit the final report in 2020. Chris Sanger of EY says that Hammond will review the UK digital services tax in 2025.
TechUK fears that going through the plan without support could be risky, especially when the Treasury is still doubtful if the implementation of the tax will be properly executed. The chancellor might be hoping for an international agreement to surface before implementing the UK tax. Hammond’s statement clearly shows that owing to ‘painfully slow’ progress on the international front, when it comes to introduction of a digital tax, the UK is all set to strike out on its own.
Lawrence Field of Crowe UK says that not having votes make global firms easy targets. He believes that the move could be risky at a time when the UK is attempting to form closer trade relations with the US before Brexit. Also Dan Neidle fears disapproval from the Trump administration about the UK digital services tax.