No matter how it’s spun in the media, the drop in oil prices and the supermarket price wars aren’t the silver lining to the cloud that continues to hang over the economy. They certainly help people, but individuals are still feeling the pinch and it’s one that hurts all the more when news of multinationals avoiding payment of corporate tax is splashed across the papers.
The Treasury recently announced the so called ‘Google Tax’ which is intended to stop big multinationals such as Google from paying minimal tax in the UK despite making huge profits here.
What Does This New Corporate Tax Mean?
The proper name for the ‘Google Tax’ is the Diverted Profits Tax. If a company doesn’t have a UK arm, but does provide goods and services to British customers then they will be liable for a 25% tax on profits channelled out of the country. It will also impact companies that do have a UK base but avoid corporation tax by paying fees to subsidiaries based in other countries.
HMRC will assess the company processes and then outline the amount of profits that are liable for the tax. The company can appeal, but are under obligation to pay their tax within 30 days of the assessment.
So far, so good. But many corporate tax experts are predicting that this could lead to lengthy, and costly, appeals. George Bull of leading chartered accountants Baker Tilly made the following comment:
“Such controversial powers should be subject to scrutiny before legislation becomes law.”
There is also some confusion among experts as to why exactly this new corporate tax measure is being rushed into play now, when there are continuing efforts by the OECD to create a global solution to the issue of tax avoidance by large multinationals.
The worry is that the tax could make Britain less attractive to companies and that many may simply move their operations out of the UK entirely, impacting jobs as well as the wider economy. The Treasury has dismissed these claims, and in fact believes that the UK is setting the standard and that other economies will soon implement similar schemes.
In his Autumn Statement, George Osborne claimed the diverted profits tax could raise £1 billion over the next 5 years, a surprisingly small amount, but the truth behind the statement is questioned by George Bull of Baker Tilly and other corporate tax experts: “The reality is they simply can’t know how much it will be, and there have been a number of occasions where HMRC has predicted tax yields which have ended up much lower than expected.”
Only time will tell if this new corporate tax measure will have the desired effect. The OECD returns its recommendations later this year, only then will we know if this has been a misstep by the Treasury.
Baker Tilly’s team of corporate tax experts are on hand to advise you on all aspects of your company’s tax affairs. Contact them today.