UK Announces New Tax Targeting Tech Giants

The UK’s ministry for economic and finance has announced a new tax targeting corporate tech giants. The new tax will raise an estimated £400m each year by targeting large business like Amazon, Google, and Facebook.

The ministry says the tax will be ‘narrowly targeted’ to ensure startups don’t get hit with an unnecessary tax bill. The new tax seems to try and minimize the corporate greed shown by the big names in tech who have used the United Kingdom's existing tax laws to minimize tax payments in the country despite making billions of pounds there.

“We will now introduce a UK Digital Services Tax.

...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.” #Budget2018 pic.twitter.com/h2hKxMrO1Y

— HM Treasury (@hmtreasury) October 29, 2018

Tax is carefully designed to target big profits

However financial observers don’t believe the new tax will worry the big guns too much. Chancellor of the Exchequer Philip Hammond discussed the new tax in a speech that he gave in the House of Commons on Monday night saying, “It will be carefully designed to ensure it is established tech giants—rather than our tech startups—that shoulder the burden of this new tax."

"It is important that I emphasize that this is not an online-sales tax on goods ordered over the Internet. Such a tax would fall on consumers of those goods—and that is not our intention. The Digital Services Tax will only be paid by companies which are profitable and which generate at least £500m a year in global revenues in the business lines in scope," he continued.

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The tax will go into effect in April 2020. A parliamentary inquiry in 2012 expressed its dismay towards large tech corporation of their tax evasive behavior.

Margaret Hodge, then the public accounts committee chair, slammed Google's Northern European operations chief, saying, "We're not accusing you of being illegal; we are accusing you of being immoral." According to information from Tax Watch, Facebook paid just £15.8m in UK tax last year despite collecting a record £1.3bn in British sales.

Tech giants cleverly avoiding payments

Globally Facebook made $20bn (£15.3bn) of profit on total sales of $40bn last year, meaning it converted half of its sales into profits. But the social media company claim that in the UK just 5% of sales were converted into UK-taxable profits allowing it to pay very little tax as it claimed its profits were reduced by a £444m charge for unexplained “administrative expenses”.

Amazon paid just £4.5m in UK tax last year, despite sales totaling £8.7bn and Google paid £49m on UK 2017 sales of £7.6bn. Labor welcomed the tax but said the conservatives didn't go far enough to ensure large corporations are paying enough.