The U.K. will introduce a tax on big internet companies' revenues, narrowly targeting the likes of Facebook and Alphabet, the nation's treasury chief said on Monday. Philip Hammond announced a "digital services tax" as he unveiled his budget to the House of Commons.
The tax is intended to be a "narrowly-targeted tax" on the U.K.-generated revenues of specific digital platform business models, Hammond said. It will only apply to firms making 500 million pounds ($650 million) a year in global revenues, so that only "established tech giants rather than our tech startups shoulder the burden."
The tax will come into effect in April 2020 and is predicted to bring in 400 million pounds a year.
"The rules have simply not kept pace with changing business models," Hammond said. "And it's 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."
He also said that while he preferred a global solution to address the borderless nature of the wealth of the likes of Google and Facebook, negotiations with other countries had been too slow.
Companies typically pay their taxes where they are based. But while local governments can impose a sales tax on physical goods in shops and restaurants, that has not been the case with online service providers. In the European Union, foreign companies like Amazon, Google and Facebook pay what tax they owe in the country where they have their regional base — usually a low tax haven like Ireland. Therefore their business generates little to no tax revenue in countries, like the U.K., where they have significant operations.