Beyond U.K., Google and tech peers see rising tax tide

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The U.K. just joined a growing array of countries telling Big Tech it’s time to pay up.

Britain’s Chancellor of the Exchequer, Philip Hammond, announced late Monday that Britain will begin taxing the world’s biggest internet companies in April 2020. Raising 400 million pounds ($510 million) a year, the levy affects search engines, social-media services and online marketplaces that are profitable and report annual sales of at least 500 million pounds.

Facebook Inc., Alphabet Inc.’s Google and even Inc. can afford the hit. What they may struggle to absorb is the onslaught of new digital taxes from well beyond the U.K. Nations, regulators and cities are getting bolder about asking tech companies to hand over a portion of profits. Coordinating a global taxation system is no longer the priority.

“There’s no global consensus,” said Paul Miller, a tax partner at law firm Ashurst. “A number of countries are saying ‘enough is enough, we can’t just wait for international agreement on this issue.’” Representatives for Facebook didn’t immediately respond to a request for comment. A spokesman for Google declined to comment.

Europe is planning new digital tax policies that would apply across the 27-nation bloc. Countries including South Korea, Singapore and Australia are proposing their own strategies.

Hammond said the U.K. will still work at the Organization for Economic Co-operation and Development and the G20 group of nations to seek a globally agreed solution, and if one emerges, it might be adopted in place of the U.K. digital services tax.

However, the EU is also pushing for stop-gap measures while a global solution is in the works. The European Commission, the bloc’s executive body, wants an interim 3 percent tax on revenue from areas like ads and digital data, and would apply to tech companies with sales of at least 750 million euros ($852 million). Unlike the U.K., this would apply to companies regardless of whether they’re profitable or not.

Tax proposals need the unanimous approval of all EU members before becoming law and some countries are clashing over details. Despite that, Austria, which holds the rotating presidency of the EU, still aims to reach agreement on the tax by December’s meeting of EU finance ministers.

Tech companies, big and small, don’t like it. In a recent letter to EU finance ministers, the bosses of some of Europe’s most successful tech companies — including Spotify Technology SA, Supercell Oy and Zalando SE — urged the EU not to adopt the tax.

They argued it will harm innovation and investment, especially for startups. The tax would “deprive these very businesses of an essential source of capital to reinvest in their growth, weakening their ability to compete globally,” the executives wrote.

Technology shares are already on wobbly ground, having taken a beating in the stock market recently. Disappointing earnings from some companies like Amazon and Alphabet come amid an already uncertain environment marked by rising interest rates and a potential worsening trade war.

The U.S. Chamber of Commerce warned this week that unilateral European tax moves will erode trust and lessen the prospects for international agreement. “Indeed, we now see governments outside of Europe considering similar actions,” the business lobbying group said.

The pressure is not exclusively coming from outside of the U.S. either. A law passed late last year cut corporate taxes to encourage tech giants to bring back billions of dollars stashed overseas. But it also imposed minimum taxes on royalties to discourage companies from assigning valuable intellectual property to non-U.S. subsidiaries to lower their tax bills.

In Asia, governments are sending a similar message. Singapore plans to tax digital services from 2020, treating global tech giants like Netflix Inc. and Spotify the same way it would local providers. In South Korea, video games, entertainment content and software are now levied with a value added tax.

Australia introduced the Diverted Profits Tax last year, taking aim at multinationals that shift domestic revenue to other jurisdictions. Companies with global revenue of more than A$1 billion ($711 million) and Australian sales of at least $25 million have their profits taxed at 40 percent. The measure doesn’t specifically target tech companies, but it came to be known as the “Google Tax.”

— With assistance from Robert Fenner

Bloomberg News
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