The world’s biggest technology firms operating in the United Kingdom could face hefty taxes based on their total revenues rather than their profits. This new tax system was revealed in February this year by the Treasury Minister and the British Conservative Party politician, Mr. Melvyn Stride.
Currently, companies operating in the UK pay taxes in proportion to their turnover. This has not gone down well with small companies because they feel that large digital platforms do not pay enough taxes and yet they make huge profits. The government has also been facing challenges such as tax-avoidance scandals involving internet businesses. To bring fairness and avoid those scandals, these big companies will be required to report large chunk of their revenues rather than their profits.
When he appeared in an interview with the BBC, Mr. Melvyn said that the government had reviewed the current tax system and found it not fair to all players. He added that the new tax system comes up with radical proposals that will bring fairness as far as taxing is concerned. The government will move to a situation of levying taxes in proportion to the total money earned.
Several big companies especially the ones that deal with digital services are set to be affected by these sweeping changes from the UK government. These include internet search engines, online marketplaces, and social media platforms. This means the likes of Facebook, Google and Amazon will definitely feel the pinch of this new tax system.
The Treasury Minister said that the new tax proposal is the potentially preferred route the UK government plans to go. He also told the BBC that the new changes by the UK government will not harm small businesses operating in the United Kingdom.
The UK government is not the only European country attempting to introduce significant tax shake-up. Other countries such as France are also attempting to introduce sweeping changes that will affect large digital businesses. Financial analysts say that these changes will make it harder for Facebook, Google, Amazon and other US tech companies to cut their tax bills.
For example, in 2016, Google made a total revenue amounting to £1bn in the United Kingdom alone and £149m pre-tax profit. The giant search engine company paid taxes amounting to £38m. With the new changes, the proposition of tax the search engine will pay is likely to double.
Despite the introduction of the over-burdening tax proposal, all tech companies in the UK that have been accused of tax-evasion have revealed that they will abide by the current and future tax regulations.
Mr. Dan Neidle who specializes in UK finance and corporate tax said the new tax system would help the UK government get a solution to the current tax bill imbalances. He said that at the move is appealing to those internet companies that make huge losses and in some cases little profits. He advised IT companies in Staffordshire and the whole of the United Kingdom to restructure their businesses to avoid getting hurt by the new tax system.
A partner at Katten Muchin Rosenman, Mr. Sanjay Mehta also added that the new tax system, if implemented, could dramatically increase the country’s taxing base in the technology sector.