Announced by UK chancellor Philip Hammond at the House of Commons on Monday, the Digital Service Tax is being billed as a way for big firms to pay their fair share, or as the “Budget 2018” report advises, will “ensure that the amount of tax paid in the UK is reflective of the value they derive from their UK users.”
The tax would apply only to revenues generated from search engines, social media platforms, and online marketplaces, areas that companies such as Apple, Google, Amazon, and others operate within. It will also only apply to firms that generate global revenues in excess of 500 million pounds ($640 million) per annum, and would only be applied to the revenue stemming from UK customers.
The chancellor highlighted that it wasn’t a sales tax against goods and services paid for by the users, but was an attempt to force firms to pay more in corporation taxes, something that they are keen to minimize. “It’s only right the global giants pay their fair share,” suggests Hammond, who expects the tax to generate over 400 million pounds ($512 million) per year in taxes.
The measure will enter a consultation period before being implemented, but it is claimed it will only be a temporary measure until “an appropriate long-term solution is in place” to reform the international corporate tax framework.
The UK is not the only one considering ways to force the tax issue. Earlier this month, Germany’s finance minister Olaf Scholz advised there needs to be a “worldwide minimum tax level that no state may go below.”
In March, the European Commission revealed plans to require large firms to pay taxes all over the E.U., rather than just the country of its regional headquarters. The move would prevent multinational firms from shopping around countries to find the best tax deal, in order to funnel all European revenues through.
Apple is considered to be a major target of the proposals, in part due to its high revenue in Europe that it funnels through its headquarters in Ireland.
A 2016 ruling by the European Commission declared Ireland had to collect billions in back taxes from Apple, after being found to have extended preferential tax treatment to the company. Apple has since paid the entire 13.1 billion euro ($15.3 billion) balance, as well as 1.2 billion euro in interest, into an escrow account controlled by the Irish government.
Both Apple and Ireland are appealing the ruling.
This is not the first time the UK government has gone after Apple for tax. In January, Apple paid approximately $184 million to Her Majesty’s Revenue and Customs in additional taxes, following an extensive audit into pre-2015 tax filings.
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