U.K. Planning Revenue Tax on Digital Firms

The switch from a tax on profits would expose the huge U.K. sales of global internet companies to tax authorities.
Matthew HellerMarch 13, 2018

The British government is moving ahead with a plan that could significantly increase the taxes of internet companies like Facebook and Google.

A document released on Tuesday reveals the government is considering a new tax on revenue that would open up the huge U.K. sales of global digital firms to tax authorities. Tax is currently levied on profits, a much smaller number.

“The current misalignment between where digital businesses are taxed and where they create value threatens to undermine the fairness, sustainability and public acceptability of the corporate tax system,” the document, which was released as finance minister Philip Hammond delivered an update on the government’s finances, said.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

“In the autumn we published a paper on taxing large digital businesses in the global economy and today we follow up with a publication that explores potential solutions,” Hammond told U.K. lawmakers.

As Reuters reports, large internet companies “have previously paid little tax in Europe, typically by channeling sales via countries such as Ireland and Luxembourg, which have light-touch tax regimes.”

Both Google and Facebook have changed the way they account for their activity in Britain. But Facebook U.K.’s tax charge for 2016, for example, was 5.1 million pounds ($7.09 million), only a modest increase on the 4.2 million pounds level in 2015. Its revenue in Britain in 2016 was 842 million pounds.

The European Union has proposed a tax of between 1% and 5% on tech companies selling user-targeted online ads or providing advertisement space, with revenues above 750 million euros ($922 million) worldwide and with EU digital revenues of at least 10 million euros.

The U.K. government has said it wants to work with partners in the EU and the Organization for Economic Co-operation and Development to come to an international solution. But in the absence of such reform, it said Tuesday, “there is a need to consider interim measures such as revenue-based taxes.”

TechUK, a group representing more than 950 tech firms, said the government needed to consider the risk of unintended consequences that could result from moving to a revenue-based tax approach.