The head of Britain’s treasury has proposed a new tax targeting tech giants such as Google, Facebook and Amazon.com, in what he described as a necessary evolution of the corporate tax system in the digital age.
“The rules have simply not kept pace with changing business models,” Philip Hammond, chancellor of the exchequer, said in a budget address to Parliament on Monday. “And it is clearly not sustainable or fair that digital platform businesses can generate substantial value in the U.K. without paying tax here in respect of that business.”
Hammond said his proposed “digital services tax” would apply to “established tech giants” rather than start-up companies and would take shape as a narrow tax on revenue generated in Britain for tech-platform business models.
Search engines, social media networks and marketplaces were the types of digital platforms that Hammond said have changed society for the better. But he said they also challenge the sustainability and fairness of the tax system and provide a clear example of the tax code not keeping up with dynamic business models.
The announced tax initiative comes as finance officials in the European Union have proposed sweeping new tax legislation targeting technology companies. European officials critical of the current tax system say that governments are struggling to tax several forms of online activity, despite the enormous wealth generated by tech firms. Officials in Asia and South America are also considering similar tax proposals.
Hammond said that Britain has been at the forefront of corporate tax reform and acknowledged that a “new global agreement” remains the best solution in the long run. But he described the progress on updating the tax law as “painfully slow.” “We cannot simply talk forever,” he said.
Amazon and Facebook declined to comment. Alphabet, Google’s parent company, did not respond to a request for comment. (Amazon founder Jeffrey P. Bezos owns The Washington Post.)
The Dow Jones industrial average dove more than 240 points Monday, as volatility swept through U.S. financial markets. Facebook shares fell by more than 2 percent. Alphabet and Amazon suffered greater losses, dropping by more than 4 percent and 6 percent, respectively.
The tax would take effect starting in April 2020, Hammond said, and is expected to generate more than 400 million pounds per year, or about $512 million. The British government would consider withdrawing the tax if officials representing the Group of 20 and Organization for Economic Cooperation and Development come to a suitable global agreement, he said.
Hammond noted that the digital services tax will be crafted to not fall on consumers, the way an online sales tax would. Only profitable companies that pull in at least 500 million pounds in global revenue on their business lines would be required to pay, he said.