“Google Tax”: UK declares war on the big Internet evaders
The times in which it was beneficial for large companies taxed in Dublin and Luxembourg are coming to an end in the UK, which will become the first European country willing to pursue fiscal behaviour of large firms in the technology industry.
Unsatisfied with large companies that divert its net income for tax havens to avoid paying facto tax, the authorities have decided to implement a special rate of 25% which will tax the profits made in the UK by companies that are taxed outside these shores. Although it has already been dubbed “Google tax”, it will affect all firms taxed abroad.
The rate, which has been announced by the Chancellor George Osborne, intended to prevent the artificial diversion of profits abroad . This practice is based on the diversion of profits made in one country to States with very low taxation (as in the case of Ireland or the Netherlands), establishing client relations of pure convenience. Thus, Google only had to pay 20 million pounds in 2013 despite earning an income of 5,600 million and enjoy a profit margin of 20%.
Diverted Profit Tax places the spotlight on multinationals siphoning profits throughout the European market to countries that guarantee them a minimum tax. The scheme is used by large companies such as Amazon, Apple or Starbucks, which render tax accounts in Luxembourg, Ireland and the Netherlands, respectively.
Osborne aims to raise more than a billion pounds over the next five years thanks to this new tax. The rate is 5% higher than the UK corporation tax in an attempt to ensure that large companies dismantle their fiscal frameworks and decide oversee its activities altogether in the UK.
Amazon, Apple, Facebook, Google and Microsoft are among the companies that will be affected by this new rate will enter into force next year. Although the big tech firms are in the spotlight, companies like Starbucks, which channels its sales through Ireland, also will be affected by the measure.
London estimates that the new tax will raise only about 25 million pounds in the first year. But from the second will average about 350 million pounds a year, and will add more than 1,300 million pounds until the spring of 2020. “We will ensure that multinationals pay their fair share,” Osborne said in Parliament British during the presentation of a document known as autumn budget statement, in which the main tax news for next year are detailed.
Osborne said the measure will pioneer among the most industrialized countries in the world, which seems to predict that could be extended to other jurisdictions where tax avoidance has become a pain in the political and economic head to the authorities.
Within the EU, the problem reached scandalous proportions following the recent leak of agreements concluded by Luxembourg with 304 companies to enable them to reduce their tax burden by 1% in some cases. The agreements were signed when Jean-Claude Juncker, current President of the European Commission, was the prime minister and finance minister of Luxembourg. To read more on financial and tax news, check out The Cheap Accountant today.