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Tech giants must pay new 2% UK tax on digital services

The United Kingdom is to levy an additional tax on digital services, which will come into effect on April 1.

Announced during the 2020 budget on Wednesday, the major tech firms will see a 2% tax on all revenue brought in from digital services.

Companies who bring in more than £500m a year from services like search, online advertising, apps, streaming services and the rest, will face the tax. That means the likes of Apple, Amazon, Google and Facebook are likely to be affected, but smaller companies and startups will be spared.

The government says: “Large multi-national enterprises with revenue derived from the provision of a social media service, a search engine or an online marketplace to UK users,” will be in line to pay.

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In a policy paper published on Gov.UK, the Treasury said the idea behind the tax first floated in 2018 is to ensure the big companies, who store their profits oversees, will make a fairer contribution to UK society.

The paper reads: “The application of the current corporate tax rules to businesses operating in the digital economy has led to a misalignment between the place where profits are taxed and the place where value is created. Many of these digital businesses derive value from their interaction and engagement with a user base.

“This measure will ensure the large multinational businesses in-scope make a fair contribution to supporting vital public services.”

Naturally, the United States isn’t happy about it at all, but when is it ever? US Treasury Secretary Steve Mnuchin had previously warned: “If people want to just arbitrarily put taxes on our digital companies, we will consider arbitrarily putting taxes on car companies.”

The UK walks a fine line with all actions that affect American companies, with the necessity of a new trade deal following Britain’s departure for the EU on the horizon.

However, the US tech giants have long escaped paying their fair share of tax in Britain, and this matter will surely help to redress the balance whether Mr. Trump and his administration likes it or not.

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