The UK Government plans to go ahead with a new 2% digital services tax targeting tech giants operating in the UK despite threats of trade tariff retaliation from the US.
Global tech firms such as Google and Amazon have come under fire in recent years for paying virtually no tax in most of the countries they operate from. Many large companies currently move profits made in the UK to other countries that have more favourable tax rates and incentives, avoiding paying tax to the countries the money is made in.
Back in October, the UK Chancellor of the Exchequer announced a new 2% 'digital services tax' would come into effect on April 2020 with the goal of solving this problem. Under the plan, tech firms would pay a 2% tax on any money made on digital services such as advertising and subscriptions to digital services such as video streaming. Most importantly, the tax would be chargeable on profits made from UK users.
The goal was to specifically target global tech firms such as Google, Apple, Facebook, and Amazon without impacting smaller companies, with the low 2% rate being low enough for startups and the tax only covering services and not online sales. The new tax is due to come into effect in April and is expected to raise £400m per year from tech multinationals operating in the UK. Several other european countries have also planned similar taxes.
The tax became a hot issue at the World Economic Forum in Davos this week, where US secretary Steven Mnuchin said the digital services tax discriminated against US multinationals and threatened retaliation in other markets such as a tax on UK car exports to the US. The Guardian reports that Chancellor Sajid Javid has insisted that the UK will go ahead with the tax plans in April despite the US pressure.
The Organisation for Economic Cooperation and Development (OECD) has now reportedly suggested that the UK should hold off on implementing the new tax until a global solution is agreed. France has already put a hold on its own plans to introduce a 3% tax on tech firms after the US threatened to impose tariffs on the country's £1.8bn of exports to the US, including goods such as champagne and cheese.
Source: The Guardian, The Guardian, BBC News, BBC News
