SIGNIFICANT CHANGES are needed to the proposed ‘Google Tax’ to minimise the risk of catching out legitimate commercial structures, the Confederation of British Industry has urged.
The 25% levy – officially dubbed the diverted profits tax – is aimed at multinationals shifting UK profits out of the country, and is to be introduced as the government continues its fight against companies engaging in erosion of the country’s tax base.
The measure contains a two-pronged attack on the perceived avoidance structures used by companies such as Google, Amazon and Starbucks. The first test targets multinationals using a “conduit structure” through jurisdictions which have double-tax treaties with low-tax nations. These enable the companies to potentially escape UK corporation tax altogether on almost all their profits.
The second targets those with arrangements with so-called tax havens to avoid tax which can then be repatriated by the multinational to its tax base. If either of those criteria is satisfied, then the UK will apply a 25% levy to profits generated in the UK by the multinational.
But CBI director-general Katja Hall (pictured) has claimed the legislation as it stands “will subject many groups who do not engage in abusive tax arrangements to – at best – an additional layer of compliance, and – at worst – an erroneous tax liability”.
At the same time, she said, the broad scope of the rules was resulting in real concern that HMRC “will not be able to cope with the quantity of notifications from companies, causing long periods of business uncertainty”.
She added: “To alleviate the burden we recommend that a ‘gateway test’ is added into the legislation to allow companies to self-assess at the outset whether they fall within the scope of the tax. This will ensure the legislation is targeted solely on abusive arrangements and minimise HMRC resources.
Hall also added the CBI’s voice to those concerned that the move will undermine the OECD’s base erosion and profit-shifting (BEPS) work, designed to prevent tax leakage occurring through the exploitation of the discrepancies between different jurisdictions’ tax rates.
She said. “As this measure precedes OECD’s BEPS initiative findings, not only it is likely to put UK firms at a competitive disadvantage and put off would-be investors, but it may encourage other countries to take similar unilateral action, resulting in a patchwork of complex uncoordinated legislation.”