Autumn Statement 2014: UK plans to raise £1bn with ‘Google tax’
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The UK announced plans to raise over £1bn over the next five years from a new “diverted profits” tax on multinationals but details were scanty and advisers said it was unclear how the levy would work.
The measure was unveiled by George Osborne on Wednesday as part of his Autumn Statement of tax and spending measures to “make sure that big multinational businesses pay their fair share”.
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The move – widely dubbed the “Google tax” – was described by Mr Osborne as a crackdown on “some of the largest companies in the world, including those in the tech sector, [that] use elaborate structures to avoid paying taxes”.
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Advisers questioned whether the measure – intended to raise £1.4bn in total by 2019-20 – would be compatible with the UK’s double tax treaties.
One executive at a leading technology company said the industry was unlikely to fight the measure, but described the move as “unilateral action” that went beyond an ongoing examination of international tax reform by the OECD, the Paris based group of countries that aims to promote sustainable growth.
“We’ll see what our tax experts make of it . . . but it’s for politicians to make laws, and we will follow them,” he said.
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Chris Morgan of KPMG, the professional services group, speculated that the new tax would be a “deemed profits” tax rather than a corporation tax, so as to sidestep issues about double tax treaties.
He suggested that the Treasury would identify profits that escaped tax in the UK because of royalty arrangements or the absence of a taxable presence.
Mr Morgan said: “It seems to be something completely novel . . . It is a huge stick that will stop this artificial avoidance. The difficulty will be how it is defined in practice.”
He described it as a “nuclear option” aimed at encouraging companies to adapt their structures to pay more tax in Britain. Mr Morgan said “Companies that have been pushing the envelope will be very worried.”
Neal Todd, partner at international law firm Berwin Leighton Paisner, said: “After years of bringing business back to the UK it seems as though the chancellor is pandering to the populist attacks on high tech and other multinationals.
“It is hard to see how this is compatible with the UK’s double tax treaty obligations unless there is a specific treaty override.”
But some advisers said the scope of the new anti-avoidance measure was relatively modest.
In depth
Autumn Statement 2014
Autumn Statement
George Osborne makes radical changes to duty on property purchases alongside a tax crackdown on banks and multinationals
Further reading
Stella Amiss, corporate tax partner at PwC, professional services group, said: “The diverted profits tax on multinationals appears narrowly focused as it will raise about £300m a year.”
Chris Sanger, head of global tax policy at professional services firm EY, said more information on the new tax was likely to be released when the draft legislation for the finance bill was published this month.
The Treasury said the tax was aimed at countering “the use of aggressive tax planning techniques used by multinational enterprises to divert profits from the UK”.
The levy is set to be introduced using a rate of 25 per cent from next April.
The Treasury also announced plans to raise £260m over five years from a crackdown on “hybrid” arrangements that make use of differences between countries’ tax regimes.
Mr Osborne also said he was also taking action to prevent the disguising of fee income by investment managers; the avoidance of tax through special purpose share schemes, miscellaneous losses and payments of benefits in lieu of salary; the avoidance of stamp duty on takeovers; and unfair benefits from the transfer of some intangible assets on incorporation.
