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UK follows France as it unveils new tax on Google and other tech giants

Tom Belger
Finance and policy reporter

The UK government unveiled plans for a tax on global tech firms hours after the French senate voted to approve a similar levy — despite US President Donald Trump’s opposition.

Prime minister Theresa May’s government published a draft law on Thursday, in what could be one of her final pieces of legislation and a last-ditch bid to shape her legacy beyond Brexit.

The tax would come into force in April 2020, and is expected to raise almost £1.5bn in four years.

A 2% tax is planned on the revenues of search engines, social media platforms, and online market places that “derive value” from UK users, according to draft legislation seen by Yahoo Finance UK.

Conservative government minister Jesse Norman said the tax would ensure “large multinational businesses pay their fair share towards the public services we rely on.”

The logos of Amazon, Apple, Facebook and Google. Photo: Reuters

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The measures would hit companies in these sectors with global revenues of more than £500m and revenue from UK users of more than £25m.

Firms will receive a £25m tax-free allowance however, with only revenue above that figure subject to tax at a 2% rate.

Both the French and British plans come after efforts to secure an international agreement on taxing global tech firms broke down.

In government documents seen by Yahoo Finance UK, officials said there is a “misalignment” in global tax rules between where companies currently pay their taxes and where they profit from their users.

They said the current tax is a strictly short-term measure until a “sustainable” reform of global corporate tax rules is agreed to on the global stage.

Prime minister Theresa May could be trying to carve out a legacy. Photo: Press Association

But such measures are controversial, with Trump ordering an investigation into whether the French proposals could unfairly target US companies.

The UK government has also tweaked its proposals under pressure from business, and said it will make “various changes” after consulting on the reforms.

Company’s revenues will now be assessed on a “group-wide basis,” and financial and payment services will be given an exemption.

Matthew Herrington, a tax partner at KPMG UK who has studied the plans, told Yahoo Finance UK: “The legislation is open for consultation until 5 September, and appears to have undergone several revisions intended both to achieve more effectively the policy intention behind the legislation and to make it easier to administer.

“There is clearly no appetite at present from the UK government to shelve the proposals pending wider global coordination.

“However, it does remain to be seen whether this will change in light of today's announcement that the US may impose retaliatory tariffs relating to the French digital services tax.”