UK budget: tax on digital services starts April 1

Britain will start charging a tax on digital services in three weeks despite fierce opposition from Big Tech and the US government.

The UK government said Wednesday that it’s moving ahead with a 2% tax on revenue from digital services such as search and advertising starting on April 1. The levy will apply to firms with global sales of more than £500 million ($648 million), with at least £25 million ($32.4 million) coming from UK users.

“This will ensure the amount of tax paid in the UK reflects the value these businesses derive from their interactions with” users in Britain, the Treasury said in its 2020 budget.

The tax was first proposed in 2018, and draft legislation for the tax was introduced in July 2019.

The measure is designed to ensure that large tech companies — many of them American — pay more tax on sales made in the United Kingdom. The US government has argued, however, that taxes on digital services unfairly target American firms.

Jason Oxman, CEO of the Information Technology Industry Council, said the tax “stands to directly and disproportionately impact” companies with headquarters in the United States.

Instead of moving ahead with the new levy, Oxman urged the British government to address the issue through new global rules being negotiated by member countries of the Organization for Economic Cooperation and Development. The UK government said Wednesday that it would repeal its 2% tax if an international tax overhaul is hammered out by the OECD.

Several countries have enacted or are considering digital services taxes. A French initiative kicked off a trade spat with the United States, with President Donald Trump threatening new duties on French goods including wine in response.

A truce reached in January prevented further escalation, with an agreement that both sides would make no moves until the end of the year while negotiations continue at the OECD.

During the World Economic Forum in Davos, French Finance Minister Bruno Le Maire said an OECD proposal is “on the table,” but that members are waiting on “our American friends to take the last step.”

At the same conference, US Treasury Secretary Steve Mnuchin warned — while sitting alongside former UK finance minister Sajid Javid — that the United States would retaliate if the UK tax is implemented.

“If people want to just arbitrarily put taxes on our digital companies, we will consider arbitrarily putting taxes on car companies,” Mnuchin said.

The issue could complicate trade talks between the United States and the United Kingdom, which is rushing to strike new agreements following its legal separation from the European Union earlier this year.

“At a time when the US and UK governments are poised to initiate negotiations aimed at deepening their trade and investment relationship, we urge the UK government to reconsider its national digital services tax and recommit to reaching a lasting, multilateral solution at the OECD,” said Oxman.