UK clamps down on tax avoidance

| 17/12/2014 | 0 Comments

(CNS Business): The British government has published draft legislation for a new Diverted Profits Tax (DPT), dubbed the “Google tax”, by which it intends to sidestep Britain’s existing tax treaties with low-tax jurisdictions by levying a charge that would fall outside the corporate tax system.

The government hopes to raise £1.4 billion over the next five years with the new law, which kicks in on 1 April, when foreign companies that use “contrived arrangements” to avoid having a taxable presence in the UK and divert profits to a tax haven will be taxed at a rate of 25 per cent.

The legislation, currently in a 522-page draft document (PDF), will be introduced in Finance Bill 2015.

Companies will also be required to report their own potential liability, which Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants, described as “a bit like reporting yourself to the police and then having to defend yourself”.

The aim is to target conduit-type structures, such as the “double-Irish”, which is used by Google to avoid having a large taxable presence in Britain and then reports its $5 billion annual UK revenue in Ireland. It then pays most of this to a Bermudan affiliate as a fee for using Google intellectual property.

Under the new rule, HM Revenue and Customs officers will assess whether company structures are designed to divert profits and how much of it is linked to UK activities.

Chris Morgan, head of tax policy at KPMG, said, “HMRC is effectively able to make an estimated assessment and the company has to then pay the tax within 30 days. This process – pay now, argue later – together with the 25 per cent rate, appears to be aimed at changing companies’ behaviour. A concern is, does this give too much discretion to HMRC?”

 

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Category: Finance, Financial Services

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