A 25% LEVY aimed at multinationals shifting UK profits out of the country is to be brought in as the government continues its fight against companies engaging in erosion of the country’s tax base.
The move – branded the ‘Diverted Profits Tax’ – is expected to keep £1.3bn on these shores and will come in on 1 April 2015.
Greater details are yet to be established, but practitioners are already raising concerns over how it will interact with transfer pricing rules and double-taxation treaties.
“While not surprised by the commitment to avoidance measures, the announcement of a so-called diverted profits tax was unexpected and it is not clear how this will be implemented alongside the current framework of bilateral double tax treaties. We are surprised that the government has apparently pre-empted the conclusion of the BEPS review,” Alvarez & Marsal Taxand UK managing director Kevin Hindley told Accountancy Age.
The anti-avoidance arsenal was further strengthened with the announcement that country-by-country reporting legislation would be introduced in line with recommendations set out by the OECD in its Base Erosion and Profit Shifting (BEPS) recommendations. The UK has been keen to adopt and champion the rules, which will require multinationals to provide HM Revenue & Customs with “high-level information” on their global allocation of profits, taxes paid as well as indicators of economic activity in a given country.
A consultation on addressing hybrid mismatch arrangements – a feature of tax-structured cross-border financing – will be conducted alongside those moves.
On a personal taxation level, a name-and-shame list will be brought in publishing the names of high-risk promoters of tax avoidance schemes. Labour MP and Public Accounts Committee chairwoman Margaret Hodge recently called for promoters and facilitators of schemes to share liability with those using them.
George Osborne announced specific measures against investment fund managers from disguising income by using umbrella companies to channel the fee income.
It was also announced that HMRC will consult on further penalties for serial avoiders in nearly 2015, which could see them pay compliance costs.
A new taskforce will be established to strengthen HMRC’s hand in administering, enforcing and policing DOTAS.