The U.K. Is Eyeing a Tax Crackdown on American Tech Giants


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As American technology companies anxiously await results from midterm elections next week that could result in a spurt of regulatory measures if Democrats win the House, they might also want to pay close attention to Europe.

Multiple tech taxes are in play in the region, led by a 2% levy on sales of digital services in the United Kingdom that could significantly impact Google parent Alphabet (GOOGL), Amazon (AMZN), and Facebook (FB) starting in April 2020. (Those companies currently pay taxes on U.K. profits.)

The proposed U.K. Digital Services Tax is "narrowly targeted" at "U.K.-generated revenues" of profitable tech companies with global revenues of at least £500 million ($640 million) a year. "It will be carefully designed to ensure it is established tech giants, rather than our tech startups, that shoulder the burden," U.K. Finance Minister Philip Hammond said in a speech before the House of Commons this week.

Hammond did not mention companies by name, but the tax is intended for digital business platform services such as search engines, online marketplaces, and social media firms.

Amazon and Facebook declined comment. Google and Apple (AAPL) did not respond to e-mail messages seeking comment.

Amazon, Facebook, and Google have long been criticized for underpaying taxes in the U.K. Facebook's revenue in the U.K. quadrupled to $985 million on increased ad sales in 2016, but it paid just $6 million in corporation tax, according to a 2017 report in The Guardian.

As public anger has escalated over the amount of taxes paid by Apple, Amazon, Facebook, and Google in the U.K., the British government has repeatedly floated the idea of imposing a tax on tech giants without stifling innovation from startups and driving away established businesses. The enmity extends at least to 2012, when a British parliamentary committee accused executives from Amazon and Google of tax dodging.

Conversely, at least one tech association in Britain says the proposed tax goes too far and would ensnare smaller companies, jeopardizing investments in the U.K. and harming the economy. "This approach risks undermining the U.K.'s reputation as the best place to start a tech business or to invest," techUK Chief Executive Julian David said in a statement.

"The tax is an acknowledgment of the financial force of the digital economy, and an attempt to address it under an existing tax system," Samuel Brunson, a tax law professor at Loyola University Chicago School of Law, told Barron's. "I don't think this would dissuade a tech company from locating in the U.K."

The new tax, which Hammond intends to introduce, many other countries are contemplating similar moves. France, Germany, Italy, and Spain have called for a turnover tax on U.S. tech companies to compensate for tax-avoidance maneuvers. Europe has already been a trailblazer in legislation around large tech companies. The General Data Protection Regulation, which went into effect in May, imposes stricter online privacy rules. Violators face fines of 20 million euros or 4% of global revenue, whichever is higher.

Governments worldwide lose up to $240 billion annually from tax-avoidance strategies, according to a 2015 estimate by the Organization for Economic Cooperation and Development. For example, the tech industry's practice of using Ireland as a tax haven has saved it billions of dollars for years. Apple, Google, Amazon, Facebook, Microsoft (MSFT), Twitter (TWTR), and eBay (EBAY) have corporate facilities in Ireland, where they have benefited from significantly lower corporate tax rates (12.5% compared with 21% currently in the U.S.).

Facebook is an interesting case study. In April 2016, it changed U.K. operations so that revenue from customers there was supported by its local sales support and recorded in the U.K.. Any taxable profit from such income is subject to U.K. corporation tax. Facebook in the last year has built and opened a new London office and said it plans to hire 500 employees in 2018 to bring its U.K. work force to about 2,300.

Write to Jon Swartz at

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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