September 20, 2020

The complexity of the ‘Google Tax’ risks creating new loopholes


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stream_img-4By Richard Edgar Economics Editor From ITV

That update I promised on the legislation published this morning….

It’s taken a while because I’ve had to wade through scores of pages and, as one expert told me: “It doesn’t matter how good a tax person you are, this is tough going. It’s too complicated.”

Not to be deterred, this is what I can glean after speaking to Treasury officials.

One of the main tricks to be targeted by is the way multinational companies set up companies in tax havens like the Cayman Islands.

They then make their UK subsidiary pay a huge sum for the use of the company’s brand or service to the Cayman Island firm.

This “cost” can often wipe out profits made in Britain, so there’s nothing left to tax.

From next year, the government will examine these deals and, if it judges the costs to have been inflated, they’ll be taxed here anyway – at 25% (higher than corporation tax at 20).

Secondly, will look at another trick where a sales force in Britain will gather business but the deals are concluded in a second country (one with low taxes).

The new legislation will allow tax officials to judge whether the deals related to activity in the UK and, if they are, they’ll be taxed here – at the punitive rate again.

Sounds simple, doesn’t it? Perhaps not.

Tax experts say it all depends on definitions of which profit shifting has “economic substance” and they say the legislation is so woolly that “it allows anyone to say it means whatever they say it means.”

The risk of new loopholes is significant.

One final point. At its peak (by 2017/18) the government expects the tax to raise about £360 million per annum.

It sounds a lot but, as The Guardian pointed out this morning, is less than one per cent of the £40 billion raised each year in corporation tax.

One of the tax experts I spoke to earlier agrees and says “this is unlikely to have any material effect on the multinationals they’re targeting.”

IMAGE: The crackdown has been dubbed the ‘Google Tax’. Credit: Chris Ison/PA Wire

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