Published: Wed, October 31, 2018
Markets | By Noel Gibbs

Britain to target online giants with new 'Digital Services Tax'

Britain to target online giants with new 'Digital Services Tax'

From April 2020, the government will introduce a new 2% digital services tax on large organisations, Chancellor Philip Hammond has announced in his 2018 budget.

For example, it could be surmised, by virtue of their omission from the Autumn Budget, that EU-derived tax reliefs (such as the Enterprise Investment Scheme, Enterprise Management Incentives and R&D reliefs) are meant to remain in some guise post-Brexit (the omission was particularly noticeable in a Budget that focused on investment and enterprise in SMEs).

The scheme, which offers a discount of £1,500 per office in England in an attempt to encourage local press back into town centres, for a further year. The Digital Services Tax will only be paid by companies which are profitable and which generate at least £500 million a year in global revenues in the business lines in scope.

"The new tax isn't even set to be implemented until 2020, at which time the tech giants will start to enjoy a 2% cut in their corporation tax rate".

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However financial observers don't believe the new tax will worry the big guns too much.

The ministry says the tax will be "narrowly targeted" to ensure startups don't get hit with an unnecessary tax bill.

The British proposal is therefore important: though the levy generates little additional tax revenue, it should spur other governments and the industry to reach a global agreement sooner. "It's the tax-paying entrepreneur that props up this country and it's time for these tech giants to pay their share".

Despite the chancellor describing the levy as a "narrowly targeted tax on the UK-generated revenues of specific digital platform business models" that will be "carefully created to ensure it is established tech giants and not startups that shoulder the burden", the tech industry is not impressed.

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While Amazon provides a good example of the rationale behind the tax, some feel that Apple is the big target here because of its high revenue in Europe that ends up going through its headquarters in Ireland, a low-tax safe haven.

The announcement came as Hammond splashed out on health services in a spending plan signalling the easing of eight years of austerity with a modest uplift in public spending and few major tax increases. "The UK has been leading attempts for worldwide corporate tax reform. but progress is painfully slow..."

He continued: "We will consult on the detail to make sure we get it right, and to ensure that the United Kingdom continues to be the best place to start and scale-up a tech business".

The expected sum to be raised from the tax has been calculated, the OBR adds, by collecting data on revenues generated in recent years by companies that will fall under the scope of the tax, and projecting forward. They might. There's perhaps a one in three chance of that.

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