Published: Thu, November 01, 2018
Markets | By Jeffery Armstrong

United Kingdom government eyes up Silicon Valley for tax raid

United Kingdom government eyes up Silicon Valley for tax raid

The tax, levied at two per cent of UK-derived revenues, was unveiled by Chancellor Philip Hammond during the Budget on Monday and is meant to raise around £400m from companies operating as search engines, social media platforms, and online marketplaces.

The tax will target platforms such as search engines, social media and online marketplaces, Hammond said, and it will be paid by companies that generate at least 500 million pounds a year in global revenue.

The tax will be created to ensure established tech giants, rather than start-ups, shoulder the burden, Hammond told parliament.

He said: "The tech giants do need to pay more in tax but the measure announced today is pittance for these massive global companies".

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Tech giants including Facebook, Twitter and Google will be taxed two per cent of their earnings from April 2020 under a new Digital Services Tax. In one of the most dramatic moments of his speech, Chancellor Philip Hammond declared he would raise income tax thresholds a year early.

Chancellor Philip Hammond's yearly snapshot of the nation's finances - which contained tax cuts and spending hikes - has sparked speculation another poll could be on the horizon. Hammond said the plan is expected to raise £400 million, or $512 million, per year based on the current revenues of the affected companies. This "Google tax" will come into effect in April 2020 and like the regulation introduced within the gaming industry is created to profit from the shift to online commerce.

He also said prisons, schools and local authorities would not have much to celebrate about the new budget and should be preparing for more hard years ahead.

But What Is A "Digital Services Tax" - And How Will It Work?

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And even without a governmental response, serious consideration should be given to the global tech giants' threats to alter their strategy following Brexit.

Australia has wrestled with the tax avoidance practised by big technology companies like Microsoft, Apple, Google, Facebook and Amazon for some time. It's a problem the European Commission has been looking to address with proposed tax reforms to include an interim tax of three percent on selected and currently-untaxed digital activities. In a column on The Drum, IAB chief executive Jon Mew argued that such a tax risked harming the UK's digital ad market.

"It is only right that these global giants with profitable businesses in the United Kingdom pay their fair share", Mr Hammond told parliament as he outlined the government's annual budget.

As ever, April next year will be the time to expect a lot of changes to come in as it is the start of the tax year.

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