In his Autumn Statement, the Chancellor indicated his intention to introduce a new tax on diverted profits (known popularly as the ‘Google Tax’). This measure aims to counteract arrangements used by large multinational enterprises that would otherwise erode the UK tax base. Profits that are ‘diverted’ from the UK will be subject to a new 25 percent charge.
There are two main elements to the proposed tax. The first addresses cases where foreign companies have significant operations in the UK, but under the existing rules avoid having a taxable presence in the UK. The second addresses cases where UK companies are using transactions or entities that lack economic substance in order to create tax advantages, in particular pay royalties to jurisdictions where they are subject to little or no tax on the receipt despite receiving relief from UK corporation tax.
This conference explored several aspects of the proposed tax, including: the broad objectives of the tax and its implications for the competitiveness of the UK business tax system; the rationale for introducing a separate tax rather than either designing new anti-avoidance provisions or relying on existing provisions; and the relationship of the new tax to the proposals emanating from the OECD BEPS project.