UK government plans 'Digital Services Tax' applied against Apple and other tech giants

AppleInsider · October 29, 2018 6:13PM

The government of the United Kingdom has announced plans to claw more tax revenue from Apple and other tech giants, with a proposed "Digital Service Tax" on 2 percent of all revenues derived from UK-based users that could be implemented in April 2020.

Announced by UK chancellor Philip Hammond at the House of Commons on Monday, the Digital Service Tax is being billed as a way for big firms to pay their fair share, or as the "Budget 2018" report advises, will "ensure that the amount of tax paid in the UK is reflective of the value they derive from their UK users."

The tax would apply only to revenues generated from search engines, social media platforms, and online marketplaces, areas that companies such as Apple, Google, Amazon, and others operate within. It will also only apply to firms that generate global revenues in excess of 500 million pounds ($640 million) per annum, and would only be applied to the revenue stemming from UK customers.

The chancellor highlighted that it wasn't a sales tax against goods and services paid for by the users, but was an attempt to force firms to pay more in corporation taxes, something that they are keen to minimize. "It's only right the global giants pay their fair share," suggests Hammond, who expects the tax to generate over 400 million pounds ($512 million) per year in taxes.

The measure will enter a consultation period before being implemented, but it is claimed it will only be a temporary measure until "an appropriate long-term solution is in place" to reform the international corporate tax framework.

The UK is not the only one considering ways to force the tax issue. Earlier this month, Germany's finance minister Olaf Scholz advised there needs to be a "worldwide minimum tax level that no state may go below."

In March, the European Commission revealed plans to require large firms to pay taxes all over the E.U., rather than just the country of its regional headquarters. The move would prevent multinational firms from shopping around countries to find the best tax deal, in order to funnel all European revenues through.

Apple is considered to be a major target of the proposals, in part due to its high revenue in Europe that it funnels through its headquarters in Ireland.

A 2016 ruling by the European Commission declared Ireland had to collect billions in back taxes from Apple, after being found to have extended preferential tax treatment to the company. Apple has since paid the entire 13.1 billion euro ($15.3 billion) balance, as well as 1.2 billion euro in interest, into an escrow account controlled by the Irish government.

Both Apple and Ireland are appealing the ruling.

This is not the first time the UK government has gone after Apple for tax. In January, Apple paid approximately $184 million to Her Majesty's Revenue and Customs in additional taxes, following an extensive audit into pre-2015 tax filings.

AppleInsider will be at the fall "There's more in the making" event, where we expect new iPad Pros, and maybe even new Macs! Keep up with our coverage by downloading the AppleInsider app for iOS, and follow us on YouTube, Twitter @appleinsider and Facebook for live, late-breaking coverage. You can also check out our official Instagram account for exclusive photos.

hentaiboy · October 29, 2018 6:19PM

“Apple has since paid the entire 13.1 billion euro ($15.3 billion) balance, as well as 1.2 billion euro in interest, into an escrow account controlled by the Irish government”.

Is Apple still showing that money on its balance sheet? If not, when did it take the hit on operating profits?

mcdave · October 29, 2018 6:30PM

“Both Apple and Ireland are appealing the ruling.”

- I’ll bet one’s appealing harder than the other.

This kind of fix helps nothing, corporates should be paying tax in the country of sale if they have no overheads then the taxable income should be greater.

rotateleftbyte · October 29, 2018 6:38PM

In the UK, IMHO, Apple is not the main target. Those are Google and Amazon.

Apple pays a significant amount of VAT, Business Rates and National Insurance (Employers Contribution) to the UK Treasury. Google issues Invoices from Dublin and claims that they do no selling of adverts in the UK and Amazon... well the less said about channelling everything via cough, cough licenses to Luxembourg the better.

The same goes for Starbucks and McDonalds.

ilondoner · October 29, 2018 6:40PM

Although I have a substantial investment in Apple shares I applaud this movement. 2% has to be just a starting position and it needs to be widened to include all the global entities pushing their European revenues through Ireland, Luxembourg and Netherlands. Ireland and the others are effectively stealing from the countries where the revenue is generated.

The list of companies includes Apple, Facebook, Twitter, IBM, HP, Dell, and the list goes on and on.

xbit · October 29, 2018 6:45PM

This is a sensible approach. Apply a band-aid until international tax law can catch up.

t.j.p. · October 29, 2018 6:46PM

All that will happen is Apple products will cost 2+% more rounded up to the next marketable price. Who pays this tax? People who buy Apple products, not Apple. The UK is wanting more money from its citizens. They know Apple will raise prices to cover this cost.

edited October 2018

seankill · October 29, 2018 7:00PM

Apple, generally speaking, is a liberal company with liberal views. It’s only fair that they pay to support their agenda which pushes for the richest (companies included) to reallocate to those below them.

Disclaimer: I do not identify with either party.

tylersdad · October 29, 2018 7:05PM

T.j.p. said:

All that will happen is Apple products will cost 2+% more rounded up to the next marketable price. Who pays this tax? People who buy Apple products, not Apple. The UK is wanting more money from its citizens. They know Apple will raise prices to cover this cost.

Exactly. Businesses don't pay taxes. Their customers do. That's why these various targeted taxes do nothing but hurt consumers. For instance, in WA state, there's a ballot initiative that would charge energy companies a "carbon fee", ostensibly to create a fund that would be used to pay for clean energy initiatives in the state. It's an indirect tax on WA state rate payers, since energy companies will simply raise rates to pay for it.

Sadly, the vast majority of the electorate seems to be illiterate and has no basic understanding of economics or business. So, it will likely pass.

rune66 · October 29, 2018 7:06PM

T.j.p. said:

All that will happen is Apple products will cost 2+% more rounded up to the next marketable price. Who pays this tax? People who buy Apple products, not Apple. The UK is wanting more money from its citizens. They know Apple will raise prices to cover this cost.

Well in a way your'e probably right but this also shows that Apple has established a de factor monopoly condition where they can charge overprices for their products. Ideally the market should see to that a company with so steep profits as Apple can't just protect their extreme profits by adding new price increases

steven n. · October 29, 2018 7:07PM

I guess if you can't fix arcane tax laws and create an environment conducive to innovation, create new taxes targeting countries that foster innovation.

command_f · October 29, 2018 7:08PM

T.j.p. said:

All that will happen is Apple products will cost 2+% more rounded up to the next marketable price. Who pays this tax? People who buy Apple products, not Apple. The UK is wanting more money from its citizens. They know Apple will raise prices to cover this cost.

Ultimately it's only the customer that has any money (Apple is just a bunch of costs without its customers) so of course they'll pay. That's not the point, this is about levelling the playing field so that there is fairer competition between online and physical sellers.

There are lots of reasons why this is necessary but, if you believe that more business will move online, it's clear that the overall tax take will drop if this isn't done. Now, that tax take funds everything from roads to health care and no-one seems keep on reducing spending in those areas. You can debate endlessly about efficiency and priorities of government spend but collecting the money is kind-of a prerequisite for actually getting the job done.

rune66 · October 29, 2018 7:10PM

rotateleftbyte said:

In the UK, IMHO, Apple is not the main target. Those are Google and Amazon.
Apple pays a significant amount of VAT, Business Rates and National Insurance (Employers Contribution) to the UK Treasury. Google issues Invoices from Dublin and claims that they do no selling of adverts in the UK and Amazon... well the less said about channelling everything via cough, cough licenses to Luxembourg the better.
The same goes for Starbucks and McDonalds.

Apple doesn't pay VAT. VAT is a consumer tax that companies collect on behalf of the state.

randominternetperson · October 29, 2018 7:10PM

The UK believes that 2% of revenue from "search engines, social media platforms, and online marketplaces" for UK consumers equals half a billion dollars/year? Really? The total revenue (from the UK only) is $25 billion/year? That seems high.

Presumably this doesn't include sales of iPhones and other physical devices, right? Since those are already covered by VAT? And doesn't Amazon already collect VAT on everything they sell in the UK? Lumping Apple, Google, and Amazon in to the same bucket is strange, given that they make their money from such different sources.

If they are focusing on App Store sales for Apple, that's a trivial problem for Apple. They can/will simply bump up the cost of apps in the UK App Store by 2%.

jwsc · October 29, 2018 7:14PM

As some of you might have heard there’s this thing called Brexit going on at the moment so this move has little to do with the E.U. and alledged Irish tax shelters. The taxes collected will be local to the U.K. and not shared with any European government.

This new tax is probably not a bad thing as the U.K. is going to need all the help it can get once Brexit is complete. As U.K. businesses begin to feel the detrimental effects of additional costs of trade with the E.U., Her Majesty’s Government will experience significant revenue decline.

restrained_nicholas · October 29, 2018 7:14PM

"Claw?"

Bad choice of words.

tylersdad said:

T.j.p. said:

All that will happen is Apple products will cost 2+% more rounded up to the next marketable price. Who pays this tax? People who buy Apple products, not Apple. The UK is wanting more money from its citizens. They know Apple will raise prices to cover this cost.

Exactly. Businesses don't pay taxes. Their customers do. That's why these various targeted taxes do nothing but hurt consumers. For instance, in WA state, there's a ballot initiative that would charge energy companies a "carbon fee", ostensibly to create a fund that would be used to pay for clean energy initiatives in the state. It's an indirect tax on WA state rate payers, since energy companies will simply raise rates to pay for it.

Sadly, the vast majority of the electorate seems to be illiterate and has no basic understanding of economics or business. So, it will likely pass.

Thank goodness the majority of the electorate understands more about economics than you do. Please look up "negative externality."

The carbon tax puts a price on polluting - one that's still far lower than what it actually costs everyone. That's one of the basic functions of taxes: encouraging/discouraging desirable behaviors.

restrained_nicholas · October 29, 2018 7:15PM

Sorry, edit that: of course I meant encouraging desirable behaviors, discouraging undesirable ones.

tylersdad · October 29, 2018 7:25PM

Restrained_Nicholas said:

"Claw?"

Bad choice of words.

tylersdad said:

T.j.p. said:

All that will happen is Apple products will cost 2+% more rounded up to the next marketable price. Who pays this tax? People who buy Apple products, not Apple. The UK is wanting more money from its citizens. They know Apple will raise prices to cover this cost.

Exactly. Businesses don't pay taxes. Their customers do. That's why these various targeted taxes do nothing but hurt consumers. For instance, in WA state, there's a ballot initiative that would charge energy companies a "carbon fee", ostensibly to create a fund that would be used to pay for clean energy initiatives in the state. It's an indirect tax on WA state rate payers, since energy companies will simply raise rates to pay for it.

Sadly, the vast majority of the electorate seems to be illiterate and has no basic understanding of economics or business. So, it will likely pass.

Thank goodness the majority of the electorate understands more about economics than you do. Please look up "negative externality."

The carbon tax puts a price on polluting - one that's still far lower than what it actually costs everyone. That's one of the basic functions of taxes: encouraging/discouraging desirable behaviors.

I understand the concept of "negative externality" quite well. The fact remains. Energy companies will not pay for this new "fee". Their customers will. And that's my biggest issue with this proposal. If the proposal were written honestly, it would charge rate payers, not energy companies. After all, energy companies only pollute so that they may provide energy to their customers. No customers. No pollution. It's pretty simple.

But, just like the ACA, it can't be written that way because the majority of rate payers would not knowingly vote to increase their power bills by $10-$20 per month...which is the estimated downstream impact to rate payers.

mike1 · October 29, 2018 7:25PM

rune66 said:

rotateleftbyte said:

In the UK, IMHO, Apple is not the main target. Those are Google and Amazon.
Apple pays a significant amount of VAT, Business Rates and National Insurance (Employers Contribution) to the UK Treasury. Google issues Invoices from Dublin and claims that they do no selling of adverts in the UK and Amazon... well the less said about channelling everything via cough, cough licenses to Luxembourg the better.
The same goes for Starbucks and McDonalds.

Apple doesn't pay VAT. VAT is a consumer tax that companies collect on behalf of the state.

Yes, but Apple primarily makes products and services that people buy and on which VATs are paid. Amazon, Google and Facebook do not (mostly) produce tangible products that are actually sold to consumers so therefore no VATs are collected.

tylersdad · October 29, 2018 7:29PM

Restrained_Nicholas said:

Sorry, edit that: of course I meant encouraging desirable behaviors, discouraging undesirable ones.

This is a similar concept to sin taxes. Such as taxes on alcohol, tobacco, and cannabis. They are designed to discourage people from using them...which is ridiculous. If people shouldn't use them, then make them illegal. But they can't do that, because they'd have a riot on their hands and it would also create a black market for these items. History clearly shows that to be the case.

entropys · October 29, 2018 7:32PM

JWSC said:

As some of you might have heard there’s this thing called Brexit going on at the moment so this move has little to do with the E.U. and alledged Irish tax shelters. The taxes collected will be local to the U.K. and not shared with any European government.

This new tax is probably not a bad thing as the U.K. is going to need all the help it can get once Brexit is complete. As U.K. businesses begin to feel the detrimental effects of additional costs of trade with the E.U., Her Majesty’s Government will experience significant revenue decline.

It has nothing to do with Brexit, it’s just about tax eaters being always hungry. It is effectively an additional VAT on digital transaction as a way of propping up physical store transactions for the politicans’ masters.

as for Brexit, I expect things will get tough for a short period as markets change, with winners and losers. Ultimately though Britain will forge new trade arrangements with other countries to its benefit, free of the shackles of continental agendas. For example, true FTAs, education and visa deals with countries like the USA, Canada, Australia and New Zealand would be quite straight forward, desirable by the citizens of all these countries. I suspect even the EU will seriously consider such after Brexit, but sure as hell won’t prior. It will do all it can to punish The UK as a lesson to others.

UK government plans 'Digital Services Tax' applied against Apple and other tech giants

Comments