Ding ding ding… Round 1. FIGHT! Punches are grazing and guns are blazing as the UK hits American tech giants with a digital services tax. In a punch below the belt, the UK government announces a 2% tax on revenue; as opposed to profits. It’s Hammond vs. Trump as round 1 concludes. Stay tuned as we delve into this week’s latest scrap, we mean, news; that’s newsworthy!
Hammond vs. Trump
Chancellor Philip Hammond kicks off round 2, suggesting the tax applies to profitable tech firms; with global revenues in excess of £500M ($640M). There’s concern these firms book their profits in lower-taxed areas out of the UK. This explains the cause, but is the cause just? He argues digital platforms that deliver search engines; social media and marketplaces actively change lives, society and the economy for the better. However, they pose a threat to the sustainability and fairness of our tax system. Apparently, current rules aren’t keeping pace with changing business models.
Moreover, US tech giants generate a lot of value; appropriate taxes should apply. He proposes it applies to firms such as: Facebook, Twitter, Google, Apple, and Amazon. Trump isn’t going to like that! Although, the levy will only apply to activities UK users participate in, as opposed to sales tax on goods ordered online; as this cost may pass to the consumer. He expects to raise nearly £400M ($512M) per year, with it coming into force April 2020.
UK tax alienating US?
Trump strikes in round 3! Early 2018 saw the European Commission release a 3% tax plan, similar to Hammond’s proposal. It’s feasible to see why Trump could see this as an attack on US business. However, Hammond wants to show British voters he’s doing something about the low taxes these firms currently pay; clamping down on tax avoidance. But at what cost? This runs the risk of alienating US relations in loom of Brexit… not good. In comparison, 2% is better than the 3% the EU is proposing. Still, we can’t imagine it’s going down well!
In the long term, it isn’t possible for these tech giants to keep shuffling money around the world to their advantage. However, despite UK and EU proposals, the chances of a digital services tax coming into play by 2020 in the current state is very low.