Fri, Dec 05, 2014 - Page 15 News List

UK targets multinationals with new tax

‘GOOGLE TAX’:The tax is aimed at making multinationals, who make money in the UK then use complex accounting systems to avoid paying tax there, to pay their ‘fair share’

Reuters, LONDON

The UK plans to introduce a tax to target multinationals such as Google Inc and Amazon.com Inc that are accused of using complex accounting schemes to cut their payments on earnings in the country.

Governments around the world are trying to overhaul international tax treaties to stop big corporations siphoning off profits into low-tax havens, but UK Chancellor of the Exchequer George Osborne broke cover on Wednesday to announce his own changes next year.

However, tax experts said that the move, in response to growing outrage over how little tax some big corporations pay, would be difficult to enforce unilaterally.

“We will make sure that big multinational businesses pay their fair share,” Osborne said in a half-yearly budget statement.

The tax is to be set at a rate of 25 percent.

“Some of the largest companies in the world, including those in the tech sector, use elaborate structures to avoid paying taxes,” he told parliament.

Companies including Google, coffee shop chain Starbucks and Internet retailer Amazon have paid minimal corporate tax in the UK by shifting revenues to low-tax jurisdictions, for example by using a system of internal payments.

Deloitte tax policy head Bill Dodwell said he saw the tax as the first step towards wider international corporate tax changes that are being thrashed out by governments.

“It will have to be done in a manner that is compatible with the way the international corporate rules are changing, and the UK is just going a bit early,” he said.

Osborne said he would introduce the tax on profits generated by multinationals “from economic activity here in the UK which they then artificially shift out of the country” in April next year.

Details about how the tax is to be levied are to be published on Wednesday next week.

Osborne said the UK was leading the world in taking such a step, and he predicted the new Diverted Profits Tax would raise more than £1 billion (US$1.6 billion) over the next five years.

Toby Ryland, partner at HW Fisher & Company chartered accountants, said the so-called “Google tax” sounded great in principle, but was unlikely to give the average multinational much cause for concern.

“In reality, many of the UK’s double tax treaties with other countries dictate where profits can be taxed,” he said.

The target to raise more than £1 billion over five years appears modest compared with the profits made by some multinationals.

Google, for example, had UK revenue of US$5.6 billion and a profit margin of about 25 percent last year, according to its annual report. That would result in profit of about US$1.4 billion, and a tax bill at 25 percent of about US$350 million.

It paid £20.4 million of corporation tax on its profits that year, according to accounts filed at Companies House in London.

British Chief Secretary to the Treasury Danny Alexander told reporters that the UK could introduce the tax without changes to international agreements on tax treaties.

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