Big technology companies are hugely powerful. Their services are used by billions of people every day. The owners of these companies are some of the richest and most powerful individuals in the world – Elon Musk, Jeff Bezos, and Mark Zuckerberg – and they’re always trying to increase their wealth and influence.
To counter the growing power of these billionaires, governments must tax tech companies appropriately. In some cases governments must make these tech giants pay more tax. In this article we set out how they can do this.
Let’s start by looking at the existing tax regime for tech companies operating in the UK.
The Digital Services Tax
Introduced in 2020, the Digital Services Tax (DST) is a 2% tax on the revenues of multinational tech companies providing UK users with specific ‘digital services’ including search engines, social media services and online marketplaces, with revenues over £25 million in the UK or £500 million globally.
Around 90% of the tax revenue came from just 5 companies in its first year, with only 18 companies in total paying it. In other words, this is a ‘Big Tech Tax’, affecting only the biggest and most established tech companies like Amazon and Meta.
The Digital Services Tax has brought in an average of £800 million a year, and it is set to bring in just under £1 billion a year from 2027 onwards.
An important tool
In 2022, the National Audit Office found that of the 18 digital companies liable to pay Digital Services Tax, 13 paid more in DST than they did in corporation tax.
Even more shockingly, 3 of them – including Amazon – paid no corporation tax at all in 2020/21. Yet, there was no evidence of them avoiding paying DST.
The Digital Services Tax is a limited but important way in which the UK government can hold a small number of the richest companies and CEOs accountable and make it harder for them to avoid paying tax on the billions they make in profit every year.
Tax breaks aren’t the answer
Tech billionaires in the United States with ties to the Trump administration have been pressing for the tax to be dropped so that their profits in the UK remain untaxed.
The UK cutting its rate of Digital Services Tax is reportedly on the table during further negotiations of the UK-US Trade Deal.
It is vital that the UK government does not appease the big tech oligarchs tied to Trump’s administration by abolishing or watering down this tax.
Instead, the UK should increase the Digital Services Tax on Big Tech.
This is not radical. Many other countries have far higher rates of DST. The Liberal Democrat Party already supports raising the tax rate from 2% to 10%.
The bigger picture
Increasing the Digital Services Tax would help raise billions of revenue to avoid cuts and invest in public services, for example health care and education, to support our economy.
It’s not right that rich multinational corporations evade tax whilst our Government makes cuts to social security and public services.
As well as strengthening the Digital Services Tax, the UK must also support a United Nations Tax Convention to advance global collaboration on tackling tax abuse, as well as ensure there are full public registers of beneficial ownership in the UK’s Overseas Territories and Crown Dependencies.