Chancellor George Osborne has announced a 25 per cent tax on company profits made in UK but diverted abroad - singling out tech companies for a so-called "Google tax."
In his Autumn Statement Osborne pointed the finger at large multinational companies, particularly those in the tech sector, that use "elaborate tax structures" to avoid paying tax in the UK.
The Diverted Profits Tax will be applied at a rate of 25 per cent from 1 April 2015. Osborne said the tax will raise an extra £1bn for the Treasury.
The move would mean the likes of Google, Amazon and Facebook could face significant new tax bills. However, it is unclear how such a scheme would work in practice.
According to an analysis (£) by the Financial Times in September, seven US technology giants found they paid just £54m in UK corporate tax. Their UK turnover was just £1.7bn in 2012, even though their overall sales to British customers totalled £15bn.
The Treasury estimates the ‘Google Tax’ will raise £25m in 2015-16, rising incrementally to £355m by 2019-20.
But Michael Devereux, director of the Oxford University Centre for Business Taxation, said the figure was relatively low compared with the annual £40bn raised in Corporation Tax.
“Governments have been worrying about shifting profits of companies for some time and paying less tax in the UK. Everytime there is a budget they announce a crackdown,” said Devereux. “What is not clear is what they will do differently.”
He said tech companies are being singled out because profit shifting is often easier for them, due to the mobile nature of their business structures.
“Intangible assets such as IP are easier to move [than having fixed assets],” he said. “Companies such as Google and Apple are known for being particularly aggressive in tax avoidance.”
During the statement Osborne said public sector borrowing is forecast to be £91.3bn this year, then £75.9bn next year. In March the forecast for this year was for borrowing of almost £87bn – a 4.9 per cent increase.
The government's annual spending and taxation plans will move out of the red and into a predicted surplus of £4bn by 2018-19, he added.
The British economy is now forecast to grow by three per cent this year, up from predictions of 2.7 per cent.
However, Osborne cautioned that "warning lights are flashing over the global economy." ®