Tech giants face new digital services tax in UK from 2020

Technology giants Google, Facebook and Amazon will face a new digital services tax in Britain from 2020 under plans announced by chancellor of the exchequer Philip Hammond in the Budget on Monday. The 2 per cent tax will target revenues earned in the United Kingdom by online search engines, social media platforms and online marketplaces, regardless of whether they have a taxable UK presence.

“This will be a narrowly-targeted tax on the UK-generated revenues of specific digital platform business models. It will be carefully designed to ensure it is established tech giants - rather than our tech start-ups - that shoulder the burden of this new tax,” Mr Hammond said.

He stressed that the tax was not an online sales tax that would hit consumers and that it would only apply to companies that generate more than £500 million a year in global revenues. The Office of Public Responsibility (OBR) said that although around 30 companies could qualify to pay the tax, most of the estimated £500 million a year in tax revenue is expected to come from a handful of companies.

Mr Hammond said Britain supported efforts at international corporate tax reform led by the Organisation for Economic Co-operation and Development (OECD) but that progress was too slow.

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“The UK has been leading attempts to deliver international corporate tax reform for the digital age. A new global agreement is the best long-term solution. But progress is painfully slow. We cannot simply talk forever,” he said.

End of austerity

Declaring that the era of austerity was coming to an end, Mr Hammond exploited an improvement in public finances to increase public spending and cut taxes. After years of cuts, public spending will rise by 1.2 per cent in real terms each year for the next five years and the chancellor promised more spending increases if Britain strikes a good deal on Brexit.

“We are at a pivotal moment in our EU negotiations and the stakes could not be higher:

Get it right, and we will not only protect Britain’s jobs, businesses and prosperity but we will also harvest a double “Deal Dividend”. A boost from the end of uncertainty; and a boost from releasing some of the fiscal headroom I am holding in reserve at moment,” he said.

The improvement in public finances, which saw the deficit and borrowing fall more sharply than expected, was due in part to lower unemployment and higher employment but also to lower borrowing costs. But economic growth forecasts remain modest, with GDP expected to grow by 1.3 per cent in 2018, 1.4 per cent in 2019 and 2020, 1.5 per cent in 2021 and 1.6 per cent in 2022.

Northern Ireland

Mr Hammond announced an extra £320 million for a Northern Ireland Executive, £350 million for a City and Growth deal for Belfast and £300m for schools projects to increase the provision of shared and integrated education. In response to representations from the DUP’s three Belfast MPs, the chancellor also announced an extra £2 million for Belfast to help towards the recovery of the city centre following the fire at the Bank Building last August.