Britain to consider taxing digital giants’ revenue

Britain's Prime Minister Theresa May makes a speech London, March 5, 2018. REUTERS/Frank Augstein/Pool

LONDON — Britain said it was considering taxing the revenues of internet companies like Facebook and Google until international tax rules are changed to cope with digital firms that can shift sales and profits between jurisdictions.

Finance minister Philip Hammond said on Tuesday he had published a paper setting out proposals for taxing global digital firms before a meeting with his G20 counterparts later this week.

Big internet companies have previously paid little tax in Europe, typically by channeling sales via countries such as Ireland and Luxembourg, which have light-touch tax regimes.

The European Union has proposed taxing tech giants between 1 and 5 percent of revenue based on where users are located, according to a draft Commission document seen by Reuters last month.

The tax should apply to companies selling user-targeted online ads or providing advertisement space, with revenues above 750 million euros ($922 million) worldwide and with EU digital revenues of at least 10 million euros, according to the document.

Both Google and Facebook have changed the way they account for their activity in Britain, resulting in a rise in corporate tax paid.

But Facebook UK’s tax charge for 2016, for example, was 5.1 million pounds ($7.09 million), only a modest increase on the 4.2 million pounds level in 2015. Its revenue in Britain in 2016 was 842 million pounds.

“In the autumn we published a paper on taxing large digital businesses in the global economy and today we follow up with a publication that explores potential solutions,” Hammond said when he delivered an update on the government’s finances.

Late last year the government also raised the possibility of imposing new taxes on tech giants unless they do more to combat online extremism by taking down material aimed at radicalizing people or helping them to prepare attacks. Britain suffered a series of Islamist attacks last year that killed a total of 36 people, excluding the attackers.

The government said on Tuesday it favored reforming the international corporate tax framework, but acknowledged that achieving consensus and creating detailed proposals would be difficult.

“In the absence of such reform, there is a need to consider interim measures such as revenue-based taxes,” it said.

Any changes would have to be targeted to protect start-ups and growth companies, it said, but it was clear that there was a challenge that needs to be solved.

“The current misalignment between where digital businesses are taxed and where they create value threatens to undermine the fairness, sustainability and public acceptability of the corporate tax system,” it said, adding that it intended working closely with the EU and international partners on the issue.

TechUK, a group representing more than 950 tech firms, said corporate tax was highly complex, and the government needed to consider the risk of unintended consequences that could result from moving to a revenue-based tax approach.

“However, it remains the case that international cooperation and coordination are key,” it said. “Unilateral action in this area continues to risk cutting across international efforts at the OECD.”

Britain’s Association of Chartered Certified Accountants (ACCA) said a revenue-based option would be “extremely unwelcome.”

“We should work with the OECD and work up a properly agreed global solution,” said ACCA’s head of taxation Chas Roy-Chowdhury. “A fully engineered solution rather than an half-baked idea should be the way forward.”

Britain also said on Tuesday it would consult on a new mechanism for collecting value-added-tax (VAT) for online sales.