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The U.K. will in 2020 launch a tax targeting large technology and digital companies and the revenue they make from British users, the government unveiled on Monday.
Philip Hammond, Britain’s chancellor of the exchequer, or treasury secretary, made the announcement of the so-called “digital tax” as various countries have been debating new tax rules for technology giants, such as Google owner Alphabet, Amazon and Facebook. Critics have said the digital powerhouses don’t pay taxes in international markets that are in line with their financial gains there.
“From April 2020, large social media platforms, search engines and online marketplaces will pay a 2 percent tax on the revenues they earn which are linked to U.K. users,” the government said in its budget announcement, saying it will end up raising around £400 million ($512 million) per year over time.
The move was designed to ensure that “large, established, digital services companies pay their fair share,” it added. “It is important that the tax system works fairly and adapts to changes in the new economy. To reflect the value derived from UK users, the government is introducing a digital services tax, ensuring large multinational businesses make a fair contribution to supporting vital public services.”
“It’s clearly not sustainable, or fair, that digital platform businesses can generate substantial value in the U.K. without paying tax here in respect of that business,” Hammond explained in presenting the budget proposal in the British parliament in London.
The government said the goal was to make sure that “the amount of tax paid in the U.K. is reflective of the value [these companies] derive from their U.K. users.”
The tax will apply to revenue generated from search engines, social media platforms and online marketplaces linked to U.K. users beyond a £25 million ($32 million) a year “allowance.” The tax will apply to companies that generate global revenue “from in-scope business activities in excess of £500 million ($640 million) per annum,” but will include a provision that “exempts loss-makers and reduces the effective rate of tax on businesses with very low profit margins.”
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