Digital tax begins in the UK

US, WASHINGTON (ORDO NEWS) — The digital tax, aimed primarily at American technology giants, including Amazon, Google and Facebook, began to operate from Wednesday in the UK. The Royal Tax and Customs Service informed about the introduction of a new levy on April 1.

“The tax on digital services is 2% on profits earned from UK users of social networks, search services and online shopping platforms,” ​​the communique says. It is explained that this tax will be levied on profits in excess of £ 500 million ($ 615 million) from activities worldwide and in the amount of more than £ 25 million pounds ($ 31 million) from activities in the UK market.

According to the Financial Times, the government expects to raise about £ 500 million a year from the budget with this tax. The idea of ​​introducing a fee was based on the idea that taxation of Internet giants should be based on the countries in which these corporations receive the main profit, and not on the location of their head offices.

In July 2019, France passed a bill to tax companies providing digital services. This tax applies to giants profits earned after January 1, 2019. It covers all companies whose turnover exceeds € 750 million in the world and € 25 million in France, as well as companies whose field of activity covers online advertising, online trading or the work of information aggregators. In response, US President Donald Trump threatened to impose duties of 100% on the import of French wines. As a result, in January it was announced that the collection of this tax was suspended until the end of 2020.

In this regard, experts in the UK expressed concern that the introduction of such a fee could provoke Washington’s response. Among the possible steps the United States called toughening its position on concluding a free trade agreement, which London calls one of the priorities in the light of the kingdom’s withdrawal from the EU. However, the British Ministry of Finance pointed out that it would not abandon its plans and that the tax would be temporary until this issue was regulated by international agreements.

About the income of Internet giants

Facebook in 2017 paid only £ 7.4 million in taxes in the UK ($ 9 million at the current exchange rate), while its revenue from operations in the country amounted to £ 1.3 billion ($ 1.6 billion). Her profit was to exceed half a billion pounds, but £ 444 million ($ 545 million) in the company’s report was written off as “administrative expenses”, the essence of which was not publicly disclosed.

As a result, the company’s taxable profit was only £ 62.7 million ($ 77 million). In addition, the company managed to get tax benefits of £ 8.4 million ($ 10.3 million) due to the fact that it issued employees bonuses with its shares. This trick is regularly resorted to by Amazon and many other UK-based firms, but it is successful global companies whose shares are steadily growing in value that benefit most from it.

The costs of the digital economy, to which the tax laws of most countries are still trying to adapt, also allow global companies to minimize taxes by registering units around the globe and paying the bulk of taxes where the tax regime is most favorable.

The “redistribution of profits” occurs mainly due to royalties that units pay to the head office, which pays taxes “for all” on preferential terms. So, in Europe, Apple received favorable conditions for itself from Ireland, and Amazon – from Luxembourg.

Another advantage of technology giants is that their main competitors are often companies with both a more traditional business model and more deeply rooted in the economy of a particular region. The same Amazon, which accounts for a third of the entire British e-commerce market, competes mainly with the American Ebay and the main British retail chains.

Among them are Tesco, Argos, which is owned by retailer Sainsbury’s, Marks & Spencer, John Lewis and Debenhams, “burdened” with numerous physical stores, and therefore associated costs, and unable to pay taxes in Luxembourg or the Cayman Islands.

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The article is written and prepared by our foreign editors from different countries around the world – material edited and published by Ordo News staff in our US newsroom press.