Going it alone: Tech giants to be hit by UK digital services tax

Technology giants operating in the UK will be served with a narrowly-targeted digital services tax, chancellor Philip Hammond announced today.

With consultations to occur before the tax goes live in April 2020, the chancellor said the move is to ensure "the UK continues to be the best place in the world to start and scale up a tech business".

In an effort to protect the livelihood of the UK's burgeoning startup scene, the measure will only apply to profitable businesses within the tax's scope, such as search engines, social media platforms and online marketplaces, that earn at least £500m in global revenue.

Aimed at the likes of Amazon, Facebook and Google, Hammond has estimated that the two per cent tax on UK revenue will raise over £400m per year. Facebook, for example, paid less than £16m in corporation tax last year.

However the Office for Budget Responsibility has forecast that Google and other tech giants could pay a mere £30m more each year under the new tax, and considered the chancellor's £400m estimates as "subject to high uncertainty".

"This will be a narrowly targeted tax of UK revenues of specific business models, designed for established technology giants rather than startups to shoulder the burden," said the chancellor.

"It is only right that these global giants with profitable businesses in the UK pay their fair share to supporting our public services."

The news was followed by a sharp dip in shares for some of the world's biggest technology businesses, including Amazon which fell to a low of more than five per cent shortly after the tax was announced. In the UK, online retailers such as Asos and Boohoo briefly dipped into session lows.

Luminaries from the UK's tech sector openly denounced the proposed tax, with several leaders bemoaning its targeted approach.

David Richards, co-founder and chief executive of Wandisco, warned that "in the longer term, heavy-handed policy will feed the climate of uncertainty that surrounds the UK and encourage an isolationist mentality that damages Britain post-Brexit."

"Big US tech firms lend credibility to the UK ecosystem, but they play a more fundamental role in creating an environment that is helping British start-ups scale, innovate and grow."

Russ Shaw, founder of Tech London Advocates concurred: "Brexit, with all its uncertainties, is bringing enough economic disruption as it is. Tackling the digital tax question without coordinating efforts with the US and EU as key global partners, will only further entrench Britain in an isolationist position we cannot afford."

"Digital tax is a universal problem, and must be taken on in that manner. Any other approach makes Britain economically vulnerable, and risks damaging our tech sector in the long run."

Hammond added that should a global solution be found in discussions with the G20 and the OECD, these will be considered in place of a UK-specific tax. However for now, as promised in his speech at the Conservative party conference last month, the UK will "go it alone".

The OECD is next scheduled to meet with proposals on this matter in April 2019.

"The proposal to introduce a tax in April 2020 risks cutting across the OECD’s timescale which aims to reach consensus by 2020," commented trade body Tech UK chief Julian David. "It would be bizarre if the UK were to implement a new tax just as real and substantive international action is being reached."

Business leaders also joined in the chorus, including Institute of Directors director general Stephen Martin: "New taxes warrant a clear justification and careful implementation. The new proposed digital services tax may make political sense, but it has been announced with scant detail on how it will work apart from the revenue threshold, which is lower than even the EU has suggested.

"The chancellor must proceed with extreme caution here."