- REUTERS/Stephen Lam
- The Treasury is cracking down on big tech firms like Amazon, Facebook, Google, and Apple that shift UK profits offshore to minimise their tax bills.
- Chancellor Philip Hammond announced that the UK’s tax authorities will now charge 20% income tax on British earnings that are held offshore.
- The changes will come into force from April 2019.
- The UK joins the EU in becoming increasingly aggressive about the way big tech firms arrange their tax affairs.
UK Chancellor Philip Hammond announced a crackdown on big tech firms which use complex, offshore tax structures to minimise their UK tax bill.
Hammond announced the initiative in the 2017 budget on Wednesday, saying the government would tax British royalties held in offshore accounts from next year.
He said: “There is a wider concern … in the business community about the tax system in the digital age.”
“Multinational digital businesses pay billions of pounds in royalties to jurisdictions where they are not taxed. And some of these royalties relate to UK sales.
“So from April 2019, and in accordance with our international obligations, we will apply income tax to royalties relating to UK sales, when those royalties are paid to a low tax jurisdiction.”
Hammond didn’t name names, but a Treasury source said the rule change would feasibly apply to big tech firms like Apple, Amazon, and Uber, which use complex offshore arrangements to minimise their taxable income in the UK.
Amazon, for example, uses a intricate arrangement that involves paying itself royalty fees for its own intellectual property. Those royalty fees are shielded from tax, and mean the company can wipe out its taxable income.
The Treasury source explained: “If you’re hosting your intellectual property in a country that doesn’t charge tax, and using that IP to make profit by interacting with UK customers, we will be taxing you at 20%.”
Since the UK’s tax authority can’t tax an overseas subsidiary, it will charge a “withholding tax”, meaning the money will be deducted at source.
Richard Murphy, a tax specialist who has previously written about the way tech firms avoid paying UK tax, described the announcement as “a good move.”
According to Hammond, the changes will raise £200 million a year for the UK government – still small change compared to the huge tax reductions tech companies get.
“This does not solve the problem, but it does send a signal of our determination,” he added.
Hammond also announced that firms like Amazon and eBay would need to cough up tax on behalf of overseas sellers who do not pay 20% VAT on UK sales.
According to the public accounts committee, the issue both undercuts British sellers and loses taxpayers up to £1.5 billion a year.
Marketplaces like Amazon and eBay will now be “jointly liable for VAT”, essentially meaning they will have to pick up the bill.