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Digital services tax will take $2 billion from firms including Amazon



Theresa May
British Prime Minister Theresa May has tech in her


  • The UK government announced on Monday that it will
    impose a “digital services tax” on big tech firms.
  • The tax would come into force from 2020, and the UK’s
    spending watchdog predicted that the levy would bring in a
    total of

    £1.6 billion ($2 billion) by
  • It’s difficult to estimate how much each company would
    have to pay in taxes thanks to their complicated reporting
  • Using each company’s UK filings, Business Insider
    estimates the tax could take up to £40 million ($51 million)
    each from firms including Facebook, Amazon, and

The British government has signalled that the days of big tech
firms paying tiny amounts of tax are over.

In a strategy that puts the UK one step ahead of the US and
European Union for now, British Chancellor Philip Hammond
announced a new “digital services tax” on Monday.

The new levy will involve firms such as Facebook, Amazon, and
Google paying 2% on the revenue they make from UK users and
activity. Tax is usually paid on profits, but because these
companies use complex financial arrangements to record minimal
profits in Britain, their corporation tax bill has traditionally
been low.

For example,
Amazon paid just £4.6 million ($6 million) this year in UK
corporate tax
, down from £7.4 million in 2016. This was after
posting UK revenues of nearly £2 billion.

Britain’s spending watchdog, the Office for Budget Responsibility
(OBR), said up to 30 companies would be impacted by the digital
services tax, which will apply to firms generating at least £500
million ($638 million) in global revenue. The levy would kick in
from April 2020.

The OBR forecasts that the scheme will extract $300 million in
extra tax from tech firms in its first year, rising to £400
million in 2021/22, and £500 million by 2024. Over the four
years, that totals £1.6 billion ($2 billion) for the Treasury’s
coffers. And it would mean an average revenue tax bill of up to
£16.6 million a year for the 30 companies.

Trying to establish how much companies like Amazon or Facebook
will pay after this new tax comes into force is difficult. Most
of the companies don’t actually break out the money they make
from UK users, instead adopting opaque, tax-efficient structures
in different countries. The Treasury says the digital services
tax will work on a self-assessed basis, meaning Facebook and
others will do the maths in-house.

We don’t have a reliable proxy for how much the Silicon Valley
giants make from UK users. All post financial results to the UK’s
Companies House, but those don’t necessarily reflect revenue from
British users.

According to Companies House, Facebook and Google each reported
UK revenues of approximately £1.3 billion for 2017, while Amazon
UK’s turnover was roughly £2 billion. If they were taxed 2% on
these revenues, it would lead to bills of £26 million and £40
million respectively.

It’s possible the bills could be much steeper. According
to a Fortune investigation several years ago
, Google booked
€18 billion in non-US revenue through its Irish subsidiary in
2014. Assuming most of that came from the UK, that would have
meant a tax bill of as much as €360 million (£320 million).

Still, that’s a drop in the ocean for companies like Amazon and
Google whose global revenues run to hundreds of billions of

Some UK politicians think the digital services tax doesn’t go far
enough. “The tech giants do need to pay more in tax, but the
measure announced today is pittance for these massive
international companies,”
said Labour’s deputy leader Tom Watson

And the OBR acknowledges that its own forecasts are currently
sketchy, as it designated the estimates as carrying “high
uncertainty.” Chancellor Philip Hammond also did not detail
exactly how the tax would work.

Get the latest Google stock price here.

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