The government has confirmed it will introduce a digital services tax to collect 2% of online revenues made in the UK by companies such as Facebook, Google and Amazon.
Although it was not mentioned during Chancellor Rishi Sunak’s speech, which focused on the coronavirus outbreak, the government has confirmed the tax will be introduced on 1 April 2020.
HMRC believes the tax could result in as much as £515m in additional annual income by the end of the financial year ending in 2025.
The department explained the tax was likely to affect “large multi-national enterprises with revenue derived from the provision of a social media service, a search engine or an online marketplace to UK users”.
Key among these will be Facebook, Google and Amazon. The American companies have often been criticised for paying very little tax on the large revenues which they generate in the UK.
Companies such as Apple, which are expanding into the digital services sector, including entertainment streaming and a credit card, may also be impacted.
Apple’s core revenues in the UK come from consumer device sales which will not be impacted by the tax.
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The Trump administration has previously threatened to slap tariffs on French products worth billions of dollars in retaliation to France’s similar tax.
The French levy is higher than Britain’s, demanding 3% of annual revenues from companies making more than €750m (£655m) in sales globally and more than €25m (£21m) in France itself.
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In the UK, the tax will only apply to companies with revenues greater than £500m from which more than £25m are generated by British users.
But both of these taxes will certainly include Facebook, Google and Amazon, which individually bring in billions in annual revenue.
Amazon paid £220m UK tax on £10.89bn in revenues in 2018
The US has claimed similar attempts to tax these web giants were designed to discriminate against American companies – thus justifying a stringent response with tariffs.
There has not yet been a response from the US regarding the UK’s taxation plans, but reports have suggested that Donald Trump and Boris Johnson have fallen out despite the president endorsing him during last year’s election.
According to the Financial Times, Mr Trump was “apoplectic” with fury in a phone call with the prime minister over his decision to allow Huawei equipment within the UK’s 5G network infrastructure.