The U.K. government Wednesday took aim at tech companies and other international firms, proposing a 25% tax on profits on “economic activity” that is shifted overseas.
Treasury chief George Osborne said in his autumn budget statement to Parliament that he wanted to make sure “big multinational businesses pay their fair share.”
The proposal makes good on Mr. Osborne’s warning in September that he was going to crack down on companies – particularly tech companies – that use complex structures to lower their U.K. tax bills.
“Some of the largest companies in the world, including those in the tech sector, use elaborate structures to avoid paying taxes,” he said. “That’s not fair to other British firms. It’s not fair to British people either. Today we’re putting a stop to it. My message is consistent and clear: low taxes, but low taxes that will be paid.”
When I first read this story, I was terribly confused. You see, I was under the impression that a company's revenues were already taxed directly.
As I understood it, the UK collects a VAT (value added tax) on (almost) all commercial transactions. This differs from an American sales tax, where few transactions are directly taxed (mainly when you sell to consumers), and that difference means that the VAT is in effect a corporate income tax.
Yes, I know that the popular view is that the tax burden is born by consumers, but if a company's customers are other companies then there are no consumers involved. And since Google's main source of revenue is advertising, the idea that they will pass the cost along to consumers simply doesn't make any sense.
Or did I miss something?
images by Images_of_Money