Silicon Valley

The UK government is set to impose a new tax on the UK revenues of big tech companies, Chancellor Phillip Hammond (pictured) announced in the annual budget yesterday.

The news: A new digital services tax of 2% on technology companies that make more than $638 million globally will come into force in the UK in April 2020. The government expects it to raise more than $510 million a year. It will apply only to UK revenue from search engines, social-media platforms, and online marketplaces.

Grappling with giants: There’s been growing discussion of the viability (and indeed desirability) of a “tech tax” in recent months as a way to grapple with the sprawling, international structures of big US tech firms like Google, Facebook, and Amazon. The UK is the first country to try to put something like this into practice.

The response: The tax has been broadly well received in the UK, where there’s huge demand to address the undertaxation of big tech companies. For example, Amazon paid $2.2 million in UK taxes last year on revenues of $2.5 billion. Crucially, it switches taxation from focusing on profits (which can be artificially lowered) to revenues (which are a lot harder to conceal). 

What’s next? The UK’s budget watchdog expects that companies will try to find loopholes to pay as little as possible of the tax, tiny as it is. However, the UK’s move will be closely watched by the G20, the OECD, the EU and other organizations trying to find an international solution.