Facebook and Google logos are displayed on computer screens in this arranged photo in New York, U.S. (Photographer: Peter Foley/Bloomberg)

How Big Tech Will Be Hit by U.K.’s New Digital Tax

(Bloomberg) -- The U.K. has announced a tax targeting the likes of Alphabet Inc. and Facebook Inc. in response to a growing chorus of criticism of cash-rich tech giants. The levy is the first major move by a government to turn disaffection against big tech into policy.

1. What’s the U.K. plan?

The U.K. Chancellor of the Exchequer Philip Hammond looks to raise 1.5 billion pounds ($1.7 billion) over four years by taxing the largest internet businesses, starting in 2020. The levy will consist of a 2 percent tax on the revenue of business models such as search engines, social-media platforms and online marketplaces. The government plans to tax revenue linked to U.K. users. However, tech companies generally have not been transparent about how much money they make from various regions and business lines.

2. Will tech companies be forced to be more transparent?

The short answer is no. The U.K. plans to ask the companies to “self-assess” the tax they should pay. This will likely pose problems, as activists and politicians already challenge whether tech companies are paying sufficient taxes. Google paid just $16 million in U.K. corporate tax on $18 billion of revenue from 2006 to 2011, according to a government investigation.

3. Will the tax affect startups and smaller companies?

No. It will apply only to businesses that generate 500 million pounds in global revenue from the relevant business models. Those reporting losses -- such as Uber Technologies Inc. -- will pay a reduced rate of tax.

4. What are other governments doing?

The European Union is debating a 3 percent version of the same tax that would require the unanimous support of the bloc to be passed. It is being stymied by members, including the Czech Republic, which argue that the cost of collecting the tax would be higher than the revenue it would generate. Arguments over how to regulate big tech are also ongoing in the U.S. Voters in San Francisco will decide in November whether to levy an additional tax on large businesses to fund services for the homeless in the tech hub.

The Reference Shelf

  • The British Treasury’s plan.
  • Bloomberg Opinion’s Alex Webb explores the global.
  • Bloomberg stories on big tech’s expansion in the U.K. and Amazon’s tax bill.

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