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Treasury reveals 'Google tax' structures
The Treasury published detailed plans to crackdown on tax avoidance by multinationals, as announced in George Osborne’s Autumn Statement, last week. The diverted profits tax will come into force on April 1, 2015 and will levy a 25% tax on companies which “artificially shift” profit generated in the UK. The tax will apply to multinationals whose UK sales are worth over £10 million and is hoped to raise GBP 1bn over the next five years.
The global public debate around corporate tax avoidance has been growing at both a national and international level but this has intensified in recent months– most notably with the base erosion profit shifting (BEPS) initiative being undertaken by the OECD on behalf of the G20. In Europe, Ministers from France, Germany and Italy, the Eurozone’s three biggest economies, have this week written to Europe’s economics and tax commissioner, Pierre Moscovici, calling for reform.
Multinationals could face double taxation where the same profits are taxable under another jurisdictions’ tax regime. Normally such double taxation is prevented through the operation of the treaties. The new tax is also open to potential legal challenges from companies resident in countries with existing tax treaties, such as Ireland. Companies will face a higher burden on compliance as they are responsible for telling HMRC if they think they are liable for the new tax. The levy is also due to come into place in April 2015, just one month before the UK National election, following which any new government could once again tinker with the tax rules.
Tax reform in the global economy is necessary but this can only be well achieved through multilateral co-operation – it is therefore disappointing that the UK has gone it alone.
Frederic Donnedieu, Taxand Chairman
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