The Diverted Profits Tax, already dubbed the Google Tax, is set to raise over £1bn over the next five years by applying a 25 per cent tax to profits generated in the UK by businesses which “use artificial arrangements” to divert profits overseas to avoid paying UK tax.
“Some of the largest companies in the world, including those in the tech sector, use elaborate structures to avoid paying taxes,” said chancellor George Osborne yesterday.
Osborne’s comments pointed the finger squarely at companies such as Google, Amazon and Starbucks who have been accused of using such strategies to avoid paying pax, although all say that they operate within the law.
The unexpected measure also comes ahead of the G20’s OECD group recommendations on profit shifting, due to be published December 2015.
“People are surprised the UK has chosen to jump early, but my suspicion is that the UK is intending to do something that is compatible with the OECD’s recommendations when they come out,” Deloitte’s head of tax policy Bill Dodwell told City A.M.
As the rate is higher than the UK’s existing corporation tax rate of 21 per cent the move suggests that the government is hoping businesses abandon structures to divert profits to low-tax countries like Luxembourg and Ireland.
Further details of the new measure will likely be revealed on Wednesday when the 2015 draft Finance Act is published.