The Treasury take action against “Google tax” and large corporations

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The Treasury in the UK has released more details of the so-called Google tax, a new tax to be levied on diverted profits designed to prevent large firms from shifting profits to companies established in tax havens such as Ireland in order to avoid paying corporation tax.
The Treasury in the UK has released more details of the so-called Google tax, a new tax to be levied on diverted profits designed to prevent large firms from shifting profits to companies established in tax havens such as Ireland in order to avoid paying corporation tax.

The diverted profits tax (DPT) will apply from the 1st of April 2015 at a rate of 25% on profits being sent to overseas locations from UK activity and will be payable within 30 days after the issue of a charging notice by a designated HMRC officer. The HMRC in the UK has estimated that the new tax will raise around £25m (€32m) in the first year of operation increasing to up to approximately £360m (€454m) annually by 2017.

It follows the announcement in the Autumn Statement that the Treasury planned to take action on multinational corporations who use complicated business structures, such as the so-called ‘double Irish’ in order to avoid paying taxes.

The charge will arise if either of two rules applies. The first addresses arrangements which avoid a UK permanent establishment (PE) and comes into effect if a person is conducting business activities in the UK in the realm of supplying goods and services by a non-UK resident company to customers in the UK. There is an exemption for foreign companies where total sales revenues from all supplies of goods and services to UK customers do not exceed £10m in a 12-month period.

Whilst this tax will not apply to small and medium sized businesses, it appears to be a lot wider than the targeted tax change that was expected. When the topic was mentioned during the last Conservative Party conference, reference was made to the government putting a stop to technology companies that go to ‘extraordinary lengths to pay little or no tax’ in the UK.’