Internet giants face higher taxes in Britain after the Treasury said it favoured introducing a levy on revenues earned in the UK.
Facebook, Google, Amazon and Apple could all be subject to the measure, which may be introduced as soon as the Budget later this year.
Pushing for a radical update of international tax rules, the Treasury said on Tuesday that it ultimately wants online companies to be taxed based on where their users are. Philip Hammond is due to press for the measures at a meeting of G20 finance ministers this weekend.
However, the Chancellor is also considering an interim measure that taxes a proportion of revenues generated in the UK.
A Treasury paper published on Tuesday proposed that the revenue tax would target “online networks” - internet businesses that rely on large numbers of users and the data generated by them to function.
It is important that Government takes into account the risk of unintended consequences that could result from moving to a revenue-based tax approach.
techUK deputy chief executive Antony Walker
This would encompass social media companies such as Facebook and Twitter, search engines such as Google, and person-to-person sites where goods and services are bought and sold, such as Amazon’s marketplace, Uber and Apple’s App Store. Services such as Spotify, which benefit from a catalogue of user-generated playlists, and Uber, which relies on the network of drivers on its app, could also be affected.
“The Government’s view is that the tax system has not kept pace with these changes and that action is needed,” the paper stated. The current misalignment between where digital businesses are taxed and where they create value threatens to undermine the fairness, sustainability and public acceptability of the corporate tax system.”
US technology companies have often argued that the majority of their taxes are due in America because their services are developed there, but the Treasury said that the businesses are dependent on people contributing to the sites, and that much of their value is created by users.
Posts on Facebook, for example, are almost entirely created by users, while the data used to generate Google search results comes from millions of websites created around the world.
A revenue tax is also being championed by France, Germany, Italy and Spain, and the EU is set to outline proposals in the coming weeks, considering a levy of between 2pc and 6pc on domestic revenues. This would be likely to significantly raise the bills of many US technology companies, who book much of their European sales in Ireland, Luxembourg or the Netherlands.
The Treasury insisted that any tax would not harm young start-ups and lossmaking technology companies, raising the possibility of exemptions.
Last night TechUK, the industry body, warned against the measures. "This is a highly complex issue and it is important that Government takes into account the risk of unintended consequences that could result from moving to a revenue-based tax approach," it said. "Unilateral action in this area continues to risk cutting across international efforts at the OECD."
Separately, the Treasury is exploring how to crack down on tax avoidance from people who use sharing economy services such as Uber and Airbnb to make money, amid fears they are failing to report their work to HMRC.
It said that many people who use the sites to make extra cash on the side may never have filed tax returns, meaning they are unlikely to be aware how much tax they owe on the earnings. “The growth of online platforms makes it significantly easier for people to earn secondary sources of income. There is therefore a potential opportunity for the dishonest minority to seek to evade paying tax,” the Treasury said.
It pointed to France, where apps and websites must inform users of their tax obligations, or Estonia, where data can be automatically sent to tax authorities, as policies that could potentially be emulated.