The government will soon impose a 'digital services tax' on UK revenues generated by "established tech giants" like Facebook, Google and Amazon.
The 2% levy was announced by chancellor Philip Hammond in the Autumn budget today (29 October) and will come into force in 2020 following a period of consultation.
The announcement follows on from heavy criticism about the amount of tax tech behemoths pay to the treasury – which in most instances are gleaned from ad revenues – in comparison to their UK profit.
Without going into detail, Hammond said the tax wouldn't apply to "small UK startups" but instead be targeted at profitable digital services companies that generate "at least £500m a year in global revenue".
The Drum approached Twitter for comment, but at the time of writing they had yet to respond. Google, Facebook and Amazon declined to comment.
EU regulators, including the Organisation for Economic Co-operation and Development (OECD) have been trying to reach an agreement on how a European-wide digital tax might look. However, Hammond, who previously hinted the UK could go it alone, said progress had been "painfully slow".
He added: "It is clearly not sustainable or fair that digital platform businesses can generate substantial value in the UK without paying tax here."
Ahead of the announcement, IAB chief executive Jon Mew argued that such a tax risked harming the UK digital ad market.
"While the government has said it wants to focus new measures on larger businesses, it would be difficult to avoid collateral damage across the sector and a negative effect on competition," Mew warned.
"A tax on revenue would create a disincentive for competitors to set up and grow in the UK market and would impact on mid-market players who drive competition and provide choice."
Mew suggested that if the government was truly committed to leading the charge on innovation-friendly regulation that supports the growth of the tech sector then it should focus on supporting efforts to accelerate the EU Commission and OECD process to agree to an international approach to digital taxation.
Stephen Woodford, chief executive of the Advertising Association (AA) said it welcomed the "broad thrust" of the budget, with also placed an emphasis on growing productivity and preparing the UK for the challenges and opportunities that Brexit will bring about.
The AA said it believed action in the digital taxation area will be much more effective with "cross-border co-operation". As such, it said Hammond’s commitment to introduce a UK-only tax, which will only be implemented if international agreement is not forthcoming by 2020 "will need to ensure in its detail that Britain remains attractive to international tech investment, especially at a time of great change for the UK’s relationship with the EU and the wider world."