Britain is on a collision course with Donald Trump today after unveiling a ‘digital services tax’ to grab £400million-a-year more from global tech firms such as Amazon, Google, Apple and Facebook.
The UK is pushing ahead with plans for a proposed two per cent levy starting next April targeting online giants with global sales of more than £500million and at least £25million in UK revenue.
Chancellor Philip Hammond’s legacy plan will ignite fury in the White House who have said that any additional taxes on US businesses are ‘unfair’ with Mr Trump expected to fight fire with fire.
Yesterday French senators passed a three per cent digital tax that will hit at least 30 US companies including Alphabet, the parent company of Google, Apple, Amazon, and Facebook.
Last night Trump threatened more tariffs on French goods such as wine and also directed his business chief to start a probe into the new tech tax and whether it is illegal.
US trade representative Robert Lighthizer said: ‘The United States is very concerned that the digital services tax unfairly targets American companies’.
Britain wants take more tax from major search engines, social networks and online marketplaces who have repeatedly used legal loopholes to ensure their UK profits are taxed outside Britain in countries such as Ireland, Luxembourg and the Netherlands at a lower rate.
The Treasury estimates that business giants avoided £5.8billion in UK tax last year by shifting profits abroad and the figure is rising every year.
Amazon and Facebook paid just £6.8million combined to the Treasury, it emerged last year, despite their vast scale and global valuation of more than £1trillion between them.
The UK is pushing ahead with plans for a proposed 2 per cent levy targeting ‘large digital businesses’ such as Google, Amazon, Facebook and Apple (pictured)
The move by the Treasury puts Chancellor Philip Hammond (pictured yesterday) on a possible collision course with his US counterparts
Despite the threat of US tariffs the UK is pushing ahead with plans for a proposed 2 per cent levy targeting ‘large digital businesses’ that will bring in hundreds of millions of pounds each year.
Treasury minister Jesse Norman said: ‘This targeted and proportionate digital services tax is designed to keep our tax system in this area both fair and competitive, pending a longer-term international settlement.’
The ministry published the planned bill on the same day France became the first major economy to impose such a levy, after its parliament passed a law mandating a 3 per cent tax on internet heavyweights’ annual revenues.
The new tax prompted a furious response from Washington as President Trump lambasted France and ordered an investigation into the new levy.
The legislation – dubbed the GAFA tax – an acronym for Google, Apple, Facebook and Amazon – was passed by a simple show of hands in the Senate upper house after previously being passed by the National Assembly lower chamber.
The French move drew an angry response from Trump even before the legislation was passed, with the president ordering an investigation that the French economy minister said was unprecedented in the history of French-US relations.
And Trade Representative Robert Lighthizer said ‘the United States is very concerned’ about the digital services tax which ‘unfairly targets American companies’.
But French Economy Minister Bruno Le Maire France rejected the US reaction saying ‘threats’ were not the way to resolve such disputes.
The French move drew an angry response from Trump even before the legislation was passed, with the president ordering an investigation that the French economy minister said was unprecedented in the history of French-US relations
How Google sends its UK sales via Europe to Bermuda using a tax loophole known as the ‘Double Irish and Dutch Sandwich’
This is Google’s complicated web of holding companies that allows the web giant to reduce its international tax bill. Google US has set up two Irish companies, one of which is based in Bermuda, with a middle company in the Netherlands. The network allows revenue from around the world to be sent back to Bermuda via Ireland and Holland, with their generous tax rates, allowing Google to reduce its tax bill
Google manages to reduce its tax bill by using a set of subsidiary companies across the globe.
The network – nicknamed the ‘Double Irish and Dutch Sandwich’ – is hugely controversial but totally legal.
Google moved its headquarters for Europe, the Middle East and Africa to Ireland in 2008 to benefit from the country’s lower tax rate on profits.
In Britain, its biggest market outside the US, Google is classified as having no ‘fixed base’ so none of its sales are technically made in the UK.
It means when a British company buys a Google advert for the UK, for example, the money goes straight to Dublin, meaning it pays little tax to the UK Treasury.
After paying Ireland’s lower corporation tax rate of 12.5%, international profits are then funnelled via Google Netherlands Holdings, taking advantage of generous tax laws there.
The profits are then sent to Google’s main overseas company, another Irish business domiciled in Bermuda – where the corporation tax rate is zero.
This complicated arrangement is explained by experts as the Double Irish and Dutch Sandwich – with the Irish businesses being the bread and the Dutch subsidiary being its filling.
It means that Google’s overseas tax rate on all its profits falls to around five per cent when in the UK it would have to pay 20 per cent.
Though this process has been branded ‘immoral’ by MPs, it is not illegal and Google says it has abided by international tax rules.
The company also says its Bermuda operation does not impact the tax it pays in the UK.
Executives say the reported UK profit margins are far below the group average because most of its algorithms and codes, which drive the company’s profits, are developed outside the country.
Google still pays the majority of its taxes in America, but on its American profits only.
‘Between allies, I believe we can and must resolve our differences in another way than through threats,’ he told the French Senate.
The United States is home to many of the world’s biggest tech companies, such as Amazon, Apple, Facebook and Google.
Other leading economies want to plug a gap that has seen many such firms pay next to nothing in tax, despite making huge profits from their consumers.
The UK plans are similar to the French plans and would only target larger companies, it will not apply to small businesses or those making losses in Britain, in order to protect start-ups.
Britain backs US calls to tackle the issue by reforming international taxation rules through the Organisation for Economic Co-operation and Development (OECD) and the G20.
London has pledged to abandon its new levy once an international agreement has been reached.
Ireland, which provides the European headquarters for many of the big American tech firms, said it ‘does not comment on another country’s tax arrangements’ when asked about the French tax.
‘Ireland believes that the challenges arising from the digitalisation of the economy are best addressed by finding a sustainable globally agreed solution at OECD level,’ a finance ministry spokesman said.
The UK plans follow similar plans by the French government that will only target larger firms such as Google, not smaller tech start-ups