In the UK, the government is levying a 2% tax on tech giants like Amazon, Google and Apple. The tax, which is due to come into effect in April 2020, is expected to generate more than £400 million ($512 million) annually (based on current revenues).

The Union Jack with a piggy bank
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TechCrunch has reported on the speech Hammond gave in Parliament, quoting it as follows:

"The rules of the game must evolve now if they are to keep up with the digital economy. Digital platforms delivering search engines, social media and online marketplaces have changed our lives, our society and our economy, mostly for the better. [But] they also pose a real challenge for the sustainability and fairness for our tax system… the rules have not kept pace."

"The UK has been leading attempts for international corporate tax reform.. but progress is painfully slow. We cannot talk forever so we will now introduce a UK digital services tax."

You can see an excerpt of the speech here.

Not Taxing The End Consumer

He continued by saying that the tax is targeted on specific models. The tax is not an online sales tax, because that tax would end up being passed down to the users. The digital service tax is to be paid by companies that are profitable, making more than £500 million ($640 million) per year in global revenues. Hammond was clear to say that large companies, not startups, should “shoulder the burden” of the tax.

The Catch

This tax would really be a change in how these companies are taxed today. So far, taxes have been calculated on profits, but that is problematic because of how companies report profits. In many cases, profits aren’t recorded in the UK, even if purchases of digital services are made in the UK.

Brexit & Taxes

This is an interesting announcement, because it shows how the UK is planning to raise money in a post-Brexit country after it leaves the European Union, eschewing the wider tax code built around it.

Hammond also stated that the UK is working with the G20 and the OECD to consider how best to tax digital companies. “This shows we are serious about this reform,” he said. “It is only right that these global giants pay their fair share.”

Always A Critic

Many are already criticising this tax as being too low, that 2% and  £400 million is a drop in the ocean to these companies. These are some of the most profitable companies in the world. Amazon and Apple are the first two companies in history to ever reach the trillion-dollar market cap.

Hammond’s announcement of the digital tax comes after years of discussion, so this is just the beginning.