Silicon Valley's mega tech companies looking to avoid UK taxes will face hefty royalties on local sales, Philip Hammond has confirmed.
Just days after Irish PM Leo Varadkar demanded Apple back pay €13bn (£11.8bn) in taxes, Hammond revealed in his Budget speech that the system, dubbed the 'Google tax' by some, could raise about £200m per year. "Multinational digital businesses pay billions of pounds in royalties to jurisdictions where they are not taxed," Hammond said. "Some of these royalties relate to UK sales."
"So, from April 2019, and in accordance with our international obligations, we will apply income tax to royalties relating to UK sales, when those royalties are paid to a low-tax jurisdiction."
A recent report from the Centre for Economics and Business Research revealed Amazon was paying 11 times less tax than brick and mortar book shops in the UK. According to the Bookselling Britain report, Amazon earned £1.5bn in 2016 and paid just £7.4m in corporate tax. Book shops earned £540m in the same time frame and paid £12m in corporate tax.
Since 2010, the UK Government has earned £160bn in additional tax revenue. The new royalties are expected to generate an extra £4.3bn by 2022-23. Google paid out £130m to the UK Government in January 2016.
Labour MP Frank Field, who has been an advocate for exposing tax avoidance, said the budget would tackle the questionable methods of tech companies. "The budget offers the beginnings of a fightback against some of the most egregious and morally bankrupt methods of tax avoidance exposed by our campaign," Field said, according to The Guardian. "But taxpayers will expect a whole series of additional steps to follow, if this mega injustice is to be countered for good."
Irish PM Varadkar said on Tuesday (21 November) that Apple would have to pay back £13bn after the European Commission ruled in August 2016 that their tax agreement was illegal. "We've indicated to them [Apple] that we want the escrow account established and we want funds to be paid into the escrow account without further delay," Varadkar said.
"We do not want to be in the situation where the Irish government has to take Apple to court because the European Commission is taking the Irish government to court. I think that message is understood and I'd anticipate progress in the coming weeks."