19 March 2019

Would a digital services tax do more bad than good?

UK proposes a ‘digital services tax’ on sales by US technology giants but at what cost?

In the autumn budget, Chancellor of the Exchequer, Philip Hammond proposed the UK implement a ‘digital services tax’ on sales by technology giants.

The proposed plan would place a 2% tax on sales by large social media platforms, internet marketplaces and search engines from April 2020, affecting the likes of Google, Facebook and Amazon - which are all American.

HMRC would expect to see an extra £400m a year if the new tax is approved.

The digital tax has been spoken about amongst member states of the EU, however, nothing as of yet has been agreed on.

This comes after Amazon's UK arm paid just £4.6m in tax last year on revenues of just under £2bn, while the most recent filings from Facebook showed its 2016 tax bill stood at £5.1m as revenues almost quadrupled to £842.4m.

The Chancellor’s proposed tax has been widely criticised, particularly by business groups and US political leaders.

Many are speculating that this tax could spark a retaliation from the US with a reform to their tax structure to make ‘a level playing field’. This could also damage the UK’s efforts for deeper trade relations with the US ahead of Brexit.

On 6 March France introduced a bill to introduce a 3% tax on revenues general in France by digital companies. It will apply from income received from 1 January 2019 with the 1st tax due to be paid October 2019.  

It remains to be seen how the US will respond and how this will affect the UK's implementing a digital services tax and future trade agreements.