United Kingdom Proposes New Tax For Online Companies

Britain took an aggressive step to propose taxing large internet-based companies such as Google, Facebook and Amazon.  Starting in 2020, the new 2% tax will apply to profitable online companies who are raking in more than £500 million in revenue.

The new tax is anticipated to net Britain approximately £400 million per year in additional tax revenue.  That’s a tidy windfall for their national coffers.

E-Commerce Under Attack

This newly proposed tax is yet another global example of taxing authorities turning their eye to revenue-making sources from digital and internet-based activity.  Recently, the United States Supreme Court opened the door for individual states to tax e-commerce businesses despite the businesses not having a physical presence within the particular state.  You can read our analysis of this case here.  We anticipate that additional jurisdictions, both domestic and international, with continue attempting to tax internet-based business.

Businesses that conduct business online are left wondering what steps they can take in the wake of the seemingly growing assault on e-commerce.  In response to such taxation, some internet businesses are taking steps to modify their business structure and entity status to try to legally avoid tax liability.  While such efforts may or may not be successful depending on the circumstances, it is clear that a strong movement towards additional internet-based taxation is continuing.

Bottom Line

Some businesses are also re-evaluating their pricing and business model, seeking to pass along costs to their users and customers instead of shouldering the added costs.   Regardless of what situation a business finds itself it, it is vital for it to have a proper cohort of professionals in place to provide guidance and advice of how to adapt to the ever-changing internet landscape.

Jon L. Farnsworth is a shareholder at Felhaber Larson.  He regularly counsels technology companies on complex legal and business strategy issues.  He can be reached at 612-373-8455 or jfarnsworth@felhaber.com