The UK Autumn Budget gets tough on tech companies and tax

The government hopes a 'Google Tax' and VAT clampdown will make tech giants (and partners) pay what they owe.
Matt Brian
M. Brian|11.23.17

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Matt Brian
November 23rd, 2017
BEN STANSALL via Getty Images
BEN STANSALL via Getty Images

During yesterday's Autumn statement, Chancellor Philip Hammond outlined positive measures to push the adoption of autonomous and electric cars, develop new 5G networks, treble the number of computer science teachers and further research into AI and robotics. But tucked away in the 88-page document were small changes that show the UK government plans to get a lot tougher on technology companies that aren't willing to give back as much as they should.

The most important notice came during Hammond's budget speech. As he pledged £400 million for a UK-wide EV charging network and a £100 million subsidy for electric car buyers, the finance minister also outlined steps to claw back money from tech giants like Google, Amazon and Apple, which use legal loopholes to avoid paying tax in the UK.

"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," said Hammond in his speech. "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."

Although Hammond admits that the introduction of a so-called "Google Tax" won't stop companies from avoiding duty, it could raise an additional £200 million each year. In March, it was revealed that Google paid just £36 million in tax on UK revenues of £1 billion. That came after it agreed a deal with the UK government to pay £130 million in back taxes. Critics believe the search giant uses complex accounting schemes to get out of paying what it should, but Google argues that it complies will all UK laws.

As well as making tech companies liable for more tax, Hammond also outlined steps to make them responsible for VAT paid on goods. Companies like eBay and Amazon have been accused by MPs of turning a blind eye on VAT fraud and costing taxpayers as much £1.2 billion per year. The government intends to reduce that by adding new legislation in the Finance Bill 2017-18 that will extend HMRC's powers to make online stores liable for unpaid VAT for all traders on their platforms.

The statement reads: "This extension will help tackle the UK hidden economy and eliminate the risk of overseas traders establishing a UK shell company simply to escape the existing regime. This will come into force on Royal Assent in the spring."

From next year, eBay and Amazon will be required to check that VAT numbers displayed by businesses trading on their websites are valid and make them easily visible to customers.

"The government expects digital platforms to play a wider role in ensuring their users are compliant with the tax rules," it continues. "[It] will publish a call for evidence in spring 2018 to explore what more digital
platforms can do to prevent non-compliance among their users."

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