The UK Gets Tough on Big Tech’s Taxes

Following a series of controversies surrounding the amount of tax major tech companies like Amazon, Apple, eBay, Facebook, and Google pay, the UK has announced that it will be reviewing how these companies are taxed. Specifically, Mel Stride, the UK Financial Secretary, publically announced that a new tax on revenues would potentially be the preferred way of taxing big companies in the UK.

This change to the tax system could mean that many companies see significantly higher tax bills. Currently, tax is levied on these companies’ profits – a much smaller figure. Google, for example, made UK revenues of £1 billion in 2016. However, it made a pre-tax profit of just £149 million. If the government opted to tax the company’s revenues as opposed to its profits, Google’s tax bill would likely go up significantly. Similarly, Facebook saw revenues of £842 million in the UK in 2016, while its pre-tax profits were around £58 million. Like Google, the company would likely owe significantly more tax to the government if it were forced to pay tax on revenues.

This model would prevent companies from moving profits derived from the UK market to lower tax jurisdictions, like Luxemburg or Ireland, to lower their tax bills. “At the moment [these companies] are generating very significant value in the UK, typically through having a digital platform with lots of users interacting with that platform,” Stride told the BBC in late February. “That is driving a lot of value, so you’re looking at social media platforms, online marketplaces, internet engines – where at the moment the tax regime is not taxing those activities fairly. We want to move to a situation where we are taxing those activities fairly.”

Interestingly, the UK isn’t the only country considering a revenue tax. Several other European countries, including France and Germany, have said that they would like to implement a tax on revenues to increase tech companies’ tax responsibilities. The European Commission is also anticipated to release its own proposal on the issue, which is due to be released sometime next spring.

However, the idea of a tax on revenues is highly controversial. Many have warned that unilateral action by one country against tech companies could spark a tax war, which could ultimately have deleterious effects on consumers by driving business out of the country. Moreover, experts have said that it would be challenging to implement such a tax.

The political issue is people don’t think Google and others are paying enough tax on their profits. It is too easy for them to make their profits appear in low tax jurisdictions,” Michael Devereux, director of Oxford University’s Center for Business Taxation, told the FT. “If the international corporate tax system is not working well, what I would want to do is try and fix that to tax profits. To say, ‘Oh it’s all too hard, I want to tax revenues’ ­– that’s not a very good proxy for taxing profits.”

So, how likely is it that the revenue tax comes to fruition? And when can tech companies expect to see changes to UK tax law? It is still too soon to tell. Some have speculated that an announcement of changes could come as early as the Spring Statement to be released on March 13, which is the government’s significant annual economic and financial policy statement.

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