Large technology companies like Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), and Google (NASDAQ: GOOGL) will face new taxes when doing business in Europe, as the U.K. plans to follow France with a levy on digital services.
Tech companies have been criticized in the past for their failure to pay taxes on revenues generated from international markets. The U.K will implement its new tax by April 2020.
Prime Minister Boris Johnson Supports Tech Tax
The U.K. announced this week that it was still moving ahead with a 2% levy for digital services sold by any company with global revenue above $640 million per year.
When the tax plan was announced last year, former Chancellor of the Exchequer Philip Hammond said that “It [the law] will be carefully designed to ensure it is established tech giants, rather than our tech start-ups, that shoulder the burden.”
British Prime Minister Boris Johnson supports the tax, saying this week that “We need to look at the operation of the big digital companies and the huge revenues they have in this country and the amount of tax that they pay. They need to make a fairer contribution.”
The British law will follow a recently implemented French law that applies a 3% digital sales levy to companies that generate global revenue above $830 million per year.
United States Not Happy with Support for Tax
Because very few non-American companies would be impacted by the French and U.K. laws, President Trump sees the taxes as unfair. When speaking at this week’s NATO Summit, he said that foreign nations should not “take advantage” of American companies and that only the U.S. should be taxing them.
Trump’s administration has suggested retaliating with tariffs, threatening a 100% levy on numerous French goods ranging from champagne and cheese to makeup and handbags.
The administration is yet to comment on British law, although retaliatory tariffs are possible. The White House would prefer a global digital tax framework to be implemented so that it would be consistent across all markets.
Will Taxes Impact Investors?
Investors in companies like Google and Amazon shouldn’t see any major impact, even once the new taxes are fully implemented. The taxes would be small relative to profits, so any affected businesses should be able to absorb them.
However, if the United States does retaliate with tariffs, investors could find other reasons to lose confidence in stocks as international trade would be destabilized.
It’s worth noting that the affected companies mentioned in this article are some of the highest performing of the year, with significant growth in stock price since the markets opened in January.
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