UPDATED 20:09 EDT / MARCH 11 2020

POLICY

UK will proceed with plans to start taxing big tech firms

The U.K. government said today it’s moving forward with plans to start taxing providers of digital services in the country starting April 1, and the move is expected to affect dozens of U.S. tech firms, including Amazon.com Inc., Facebook Inc. and Google LLC.

The Digital Services Tax, as it’s officially known, will amount to 2% of the revenues of providers of search, social media and online shopping services.

It will be applied to all digital services that produce global revenues of £500 million ($647 million) or more, as long as at least £25 million ($32 million) of that revenue originates from the U.K. It’s expected that the tax will bring in around £65 million ($84 million) this year, and around £87 million ($113 million) annually in the coming years.

The tax was announced in a policy paper posted to the U.K. government’s website, just a day before it announces its 2020 budget.

The decision to press ahead with the DST comes at a time when the Organization for Economic Cooperation and Development is pushing to reform international tax rules. But the OECD’s efforts are taking too long for some countries, including France and Spain as well as the U.K. Those countries have all decided to implement their own taxes while waiting for a more permanent international agreement on the issue.

France has agreed to put off implementing its own tax until the end of the year, however, following pressure from the U.S. government, which threatened it with trade tariffs.

But the U.K.’s decision to implement its tax next month is likely to lead to more tension between it and the U.S. government. The countries are already at odds over their stance on China’s Huawei Technologies Co. Ltd.

While the U.S. has pushed for its allies to shun Huawei, the U.K. decided earlier this month to ignore that advice and allow the company to participate in “noncore” parts of its 5G network infrastructure. The U.S. had been pressuring the U.K. not to use Huawei’s equipment, in line with its own policy, and even warned that intelligence-sharing agreements could be canceled if its advice is ignored.

The White House has yet to respond to the U.K.’s digital tax announcement, but U.S. Treasury Secretary Steven Mnuchin said in January the U.S. could retaliate with a levy on U.K. car exports.

U.S. technology firms are also unhappy with the news. A lobbying group called the Information Technology Industry, which represents the interests of companies including Amazon, Apple Inc., eBay Inc., Google, Facebook and Twitter Inc., said on Wednesday it was “disappointed” with the U.K.’s decision and asked it to rethink its approach.

“At a time when the U.S. and U.K. governments are poised to initiate negotiations aimed at deepening their trade and investment relationship, we urge the U.K. government to reconsider its national digital services tax and recommit to reaching a lasting, multilateral solution at the OECD,” Jason Oxman, chief executive officer at ITI, said in a statement.

For its part, the U.K. said it still believes that an international agreement with the OECD on reforming corporate tax rules is the best long-term solution. As such, it said, the DST is meant to be an “interim measure” that will be discontinued once a more permanent solution is in place.

A longer-term solution would be all well and good, because the practice of singling out specific industries for extra taxes has never worked out too well in the past, Constellation Research Inc. analyst Holger Mueller told SiliconANGLE.

“Unintended consequences usually follow government intervention, and with the threshold set at £500 million, the law can be construed as one that targets innovative, larger companies,” Mueller said. “Societies do need to extract new revenue to support an aging population, but taxing growth industries and their successful players is unlikely to be a successful move.”

Image: geralt/Pixabay

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