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UK takes aim at tech giants, targets taxing multinationals on digital sales

The U.K. government is looking at ways to tax multinational companies on revenues generated from services to the British market, raising the prospect of a crackdown that could hit U.S. tech giants like Apple Inc. and Facebook Inc.

In a position paper published by the Treasury, the government said it intended to push for reforms to the international tax framework to ensure multinationals' profits are taxed in the countries where they provide value. In the interim it will explore options for taxing digital businesses that earn money in the country.

"It is essential that the international corporate tax rules ensure that their U.K. corporation tax payments are commensurate with the value they generate from the U.K. market and specifically the participation of U.K. users," the Treasury wrote in the paper, on which comments can be submitted up until Jan. 31, 2018.

"The U.K. will work with other countries to consider how such a tax could be targeted, designed and coordinated to minimize business burdens and distortion. However, the government stands ready to take unilateral action in the absence of sufficient progress on multilateral solutions," it said.

Such changes would have a big effect on U.S. tech companies, which are taxed in Europe on profits rather than revenues.

Starting from April 2019, the British government will apply income tax to royalties relating to U.K. sales by multinational digital businesses that are paid to low-tax jurisdictions, Chancellor of the Exchequer Philip Hammond said in his budget speech the same day. The rule change would raise about £200 million a year and sends "a signal of our determination" to address the challenge posed by the digital economy on the U.K. corporate tax system, Hammond said.

The U.K. government will also take "more immediate action" against multinational groups, mainly in the digital sector, that achieve low-tax outcomes by holding their valuable intangible assets in low-tax countries, according to the position paper. The Treasury said this move would prevent unfair competition in the U.K.

In September, EU finance ministers from 10 nations backed a new plan that would compel major digital companies to pay tax on revenues in any country where they do business, instead of being taxed on profits that they currently report in low-tax jurisdictions. The countries surged the European Commission to explore "EU law compatible options" for creating an "equalization tax" based on "turnover generated in Europe by the digital companies," Politico said.

The ministers are set to discuss the issue again in a December meeting as they need all EU members to agree on any EU tax rule changes. The proposed tax plan was introduced by France and was supported by countries including Germany, Italy and Spain.