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Last updateFri, 24 Mar 2017 12pm

 

Business leaders warn against "Google tax"

Tax


Business leaders have warned against the chancellor's plan for a so-called "Google tax" of 25% on the profits that multinationals seek to divert outside the country.

Speaking in his Autumn Statement yesterday, George Osborne announced the tax, to come into force on 1 April 2015, stating that it would raise £1 billion over five years.

Yet the sum pales in comparison to the £4 billion that Facebook and Google alone are expected to generate from online advertising next year.

He said: "Some of the largest companies in the world, including those in the tech sector, use elaborate structures to avoid paying taxes."

He added: "That’s not fair to other British firms. It’s not fair to the British people either."

However, the Organisation for Economic Cooperation and Development is already developing a strategy to tackle aggressive tax avoidance schemes and the Confederation of British Industry warned the Chancellor that it was not a good idea to pursue its own plan.

John Cridland, CBI director-general, said: "International tax rules are in urgent need of updating, but the decision for the UK to go it alone, outside the OECD process, will be a concern for global businesses, and moving the goalposts on offsetting losses risks creating a worrying precedent."

The Office for Budget Responsibility highlighted the uncertainty about whether the tax would be effective in raising the sum forecast.

It said: "The behaviour change is likely to be volatile and large due to the characteristics of the companies targeted by this measure."

The new tax is higher than the standard rate of UK corporation tax, which is 20 per cent, and is aimed at preventing multi-nationals, particularly in the tech sector, such as Amazon, Facebook and Google from legally diverting UK sales through offshore havens.

It is thought that the tax would work by requiring these companies to disclose much more information about their global allocation of profits and economic activity, including country-by-country figures, in order to decide how much tax should be levied.

But Cormac Marum, a tax director at the accountant Harwood Hutton, warned that tech firms might try to claim that the new rules discriminate under European law or there could be a challenge from another EU member state such as Luxembourg or Ireland.

Analysis by the Financial Times of seven US technology giants found they paid just £54 million in UK corporation tax in 2012, even though their overall sales to British customers totalled $15 billion.

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