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Tech Industry

UK announces new digital tax for tech giants

Silicon Valley companies will be expected to put their hands a little deeper in their pockets.

Joe Daniel Price/Getty Images

The British government said Monday it will introduce a digital tax for high-earning tech companies operating in the UK.

The tax, which won't kick in until April 2020, is among a host of economic policies unveiled by Chancellor of the Exchequer Philip Hammond as part of the country's annual budget. Profitable digital companies with revenue of more than £500 million ($640 million) per year globally will be required to pay 2 percent on revenues generated within the UK, an amount that reflects the value of their UK users. By contrast, the current system taxes foreign companies only on their UK profits, a much smaller number in most cases.

The government said the new tax had been designed to avoid penalizing smaller tech companies and startups, or stifle innovation.

However, techUK, industry group, disagreed with this assessment of the policy.

"This approach risks undermining the UK's reputation as the best place to start a tech business or to invest," said techUK CEO Julian David in a statement. "The £500 million threshold the Chancellor proposed is low and risks capturing much smaller companies than anticipated."

Correction, 2:11 p.m. PT: Fixes threshold for the implementation of the tax.