Under the so-called "Google tax" regime due to come in next year, multi-nationals will have to "self-report" any diverted profits to HMRC and then defend their own activities, according to draft legislation on the Diverted Profits Tax published today.
Last week chancellor George Osborne pledged to slap a 25 per cent tax on company whose profits were made in UK but diverted abroad, as large multinational technology companies are perceived to be the most aggressive UK tax avoiders.
The legislation, currently in its draft form (PDF), will be introduced in Finance Bill 2015.
However, Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants, said there is still little administrative detail provided to help companies prepare for the new rules, which will be introduced in just four months.
A spokesman from HMRC said officials are working hard on getting out the Tax Information and Impact Notes (TIIN) for the new draft law "ASAP".
Under the section "duty to notify if potentially within scope of tax" (page 126 of the explanatory notes to the 552-page draft bill), companies will have to report where they devise a tax scheme that involves economic activity that would otherwise be attributable to tax derived from the UK.
Roy-Chowdhury said: "It's a bit like reporting yourself to the police and then having to defend yourself."
He added: "It seems strange that multinationals would have to report themselves and the the onus is on them to defend their [tax activities.]"
The Treasury estimates the Google tax will raise £25m in 2015-16, rising incrementally to £355m by 2019-20.
HMRC said it will need to makes changes to IT systems to deliver this change, at an estimated one-off cost of £300,000. Additional staff costs are estimated to be in the region of £2.3m for 2015-16 to 2017-18 and then £1m thereafter.
A Treasury briefing recently quoted the "double Irish" tax structure – where companies route UK profits to Ireland. "It is clear which European member states are being targeted," said Roy-Chowdhury.
Many large technology companies are based in Ireland due to the country's low corporation tax of 12.5 per cent. Corporation tax in the UK is 20 per cent. ®