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U.K. to roll out its first digital tax

LONDON-UK said it will move forward with plans to introduce a taxable tax on locally generated revenue from major technology…

LONDON-UK said it will move forward with plans to introduce a taxable tax on locally generated revenue from major technology companies – the most concrete attempt yet by an industrialized nation to write about the world’s tax code for the digital era.

The new tax comes as dozens of other countries consider similar charges on digital services sold by companies such as

These governments hope to get more revenue from such services as economic activity is increasingly changing online.

It is a question of how governments collect taxes from handful tech companies, many based in the United States, who have morphed to global digital consumer giant giants. Once they have grown, governments outside their homes have been fighting jurisdictions with their digital nature to arrive at an appropriate local tax tax.

Big American technology companies have been criticized for reporting relatively little of their profits in local jurisdictions, opening them for review. An international effort among rich nations to help standardize how and where to tax these digital services has been slow. U.K on Monday said it could no longer wait. As part of its annual budget, it said it would go ahead with a plan to launch a digital tax for large technology companies by 2020.

Spain’s government proposed a similar tax on digital services this month, but this action requires parliamentary [1

9659009] The new British tax is putting pressure on major countries, including the United States, to accelerate the global effort. The Organization for Economic Cooperation and Development, a forum for rich countries, has led the international discussions on digital tax.

The opponents of digital taxes, including lobbyists for multinational companies, say that a patchwork of new rules that vary depending on the country will hurt smaller businesses. They say that initiatives can lead to double taxation of corporate profits that will interfere with international trade and counteract investment.

The technology industry opposes the proposals. On Monday, after Britain announced its plan, the IT Council Council, a Washington-based lobby group representing technology companies, including Google and Facebook, said that “the introduction of digital tax could create a chilling effect on investment in the UK and prevent companies from all sizes from job creation. “

UK Finance Minister Philip Hammond said Monday that tax would only target major profitable companies with a global income of at least £ 500 million. The new fee would amount to 2% of the company’s revenues in the UK. Mr Hammond said that it could raise about $ 400 million a year.

The proposal would affect companies that generate British revenue from services, including search engines, social media and online marketplaces. This makes the selling companies of Google and Facebook particularly vulnerable. The tax would not affect the sale of digital music or movies.

For giants like the Alphabet,

Amazon.com
Inc.

and Facebook, the U.K. tax would amount to a relatively small amount of additional tax. But it represents the first concrete step between several governments globally to increase tax burden on these and other major global technology companies.

“It’s obviously not sustainable or fair that digital platforms create a significant value in Britain without paying taxes here,” Mr Hammond said on Monday. He said that while a global agreement “is the best long-term solution,” progress has been “painfully slow”. The United Kingdom said that the new tax would only be in force until a global solution was found, but Mr. Hammond said “we can not only talk forever.”

Large American technology companies have been subject to intensive review here for how much tax they pay. Amazon UK Services Ltd., one of the online retailer’s largest UK entities, reported 2017 revenue of $ 1.98 billion and a gain of ordinary activities before tax of £ 72.37 million, but paid only £ 1.7 million in British taxes , according to Companies House, a register of company information.

Facebook’s UK subsidiary that year reported sales of GBP 1.26 billion and a gain of £ 62.76 million in 2017 and paid £ 17.19 million in taxes. Google UK Ltd. for the year ending June 31, 2017, posted a turnover of GBP 1.26 billion and profit of ordinary activities of GBP 200.55 million. It paid £ 47.36 million in British taxes.

Speakers for Amazon, Facebook and Alphabet had no immediate comment on the new tax. In criticism of their tax practices, all three companies have said that they pay their fair share.

Critics here also said that the British government’s relocation could lead to refund taxes in the United States. They also said that technology companies can simply send the fee to their customers

The US Treasury Department did not immediately comment on the new tax.

However, some small British-based technology companies welcomed the proposal as a way to remain more competitive with Silicon Valley giants.

UK First said that it had justified a new tax in November 2017. To argue for users of digital services helps to make the product that technical companies sell to advertisers and other customers. That principle has affected the rest of the European Union, which works with its own tax proposal.

Inspired by separate proposals from the European Union to introduce a tax based on technical companies’ revenues instead of their profits, South Korea, India and at least seven other Asia Pacific investigate new taxes. Mexico, Chile and other Latin American countries are also considering new taxes aimed at increasing receipts from foreign technology companies.

The United Kingdom effort emphasizes the complexity of such a tax. The Bureau of Budgetary Responsibility, U.K.’s fiscal watchdog, said that the Treasury’s estimate of how much tax the new tax will increase is very uncertain. Among the questions that have not yet been answered regarding the structure of the new tax is whether it will be deductible from corporate tax, for example. Watchdogs also flagged a variety of ways that the new fee could affect corporate behavior in an effort to minimize any liability, such as reclassification of revenue as income not subject to tax.

Still, OBR said that digital service tax could also prove to be a larger money generator for the treasury than proposed by the preliminary estimate, as online activity accounts for a growing share of the overall economy.

Write to Paul Hannon at [email protected] and Stu Woo at [email protected]

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