UK Government’s ‘Googletax’ targets global tax avoidance

In his Budget speech on March 18, George Osborne reiterated the determination of the UK Government to work together with other world leaders to tackle the well-publicised and currently topical issue of international tax avoidance. Among a number of measures... Read more

Blog5th Jun 2015

By Sarah Munro

In his Budget speech on March 18, George Osborne reiterated the determination of the UK Government to work together with other world leaders to tackle the well-publicised and currently topical issue of international tax avoidance.

Among a number of measures designed to ensure that everybody from wealthy individuals to global conglomerates pay their fair share of tax in the UK, the chancellor confirmed the introduction of a new tax dubbed the “Google tax”, which applies at the penal rate of 25% from April 1, 2015.

The diverted profits tax, which was originally proposed in the Autumn Statement, is one of the most significant measures ever introduced by any government to target large multinational organisations that use aggressive tax planning techniques to shift their profits offshore and into lower tax jurisdictions.

The tax has been implemented with the intention that it will specifically apply in two circumstances:

  • Where a foreign company with UK sales of £10million+ structures its affairs to avoid creating a taxable presence in the UK, or
  • Where a company that is taxable in the UK uses transactions and arrangements that lack substance to create tax advantages in the UK.

The chancellor’s announcement comes ahead of a conclusion to the ongoing OECD/G20’s Base Erosion and Profit Shifting Project (“Beps Project”), an initiative which was started in 2014, with the goal of eliminating international tax avoidancebywayofa15-point action plan and which the UK Government played a major role in instigating.

Publications on a number of the draft action points have already been released, with arguably the most noteworthy proposals yet relating to transfer pricing. The headline transfer pricing recommendation is the introduction of a requirement for multinationals to provide “country by country” financial reporting to its home country tax authority (with reported information to include turnover, profits, taxes paid/suffered and numbers of employees, all per country).

The home tax authority will then share this information with the relevant tax authorities globally, with the aim of highlighting instances where income and profits arising in low tax jurisdictions are not matched with appropriate substantive activity in that territory, such as the provision of employees.

It is clear already that the introduction of the diverted profits tax in the UK and the subsequent outcomes of the Beps Project will have a significant impact on large multinational organisations. However, the extent of the impact on smaller multinationals is as yet unknown.

The OECD/G20 have suggested that attempts will be made to exempt smaller companies from at least some of the proposed requirements. However, multinationals significantly smaller than the likes of Google and Starbucks should also brace themselves for change.

For more information contact Catherine Maitland, Tax Assistant Manager, Catherine.maitland@aab.co.uk

 

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