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UK Readies 25% "Google Tax" on Diverted Profits

The UK is about to make it a little trickier to do business there. An article in yesterday’s Times reveals new details on UK Chancellor George Osborne’s proposal for a 25% "Google tax" –  a tax which would penalize companies which tried to use creative accounting to launder profits from their UK operations through another country (Luxembourg, for example), thus avoiding having to pay the UK’s corporate income tax.

No one knows yet just how much could be collected, but when this tax was first proposed in December it was estimated that it could bring in as much as £300 million each year.

Income tax

The Google Tax will be higher than the UK’s usual 20% corporate income tax, and the new tax will be selectively applied to companies whose annual revenues are greater than £250 million ($378 million USD).

It’s also going to be bolstered by tighter income reporting requirement. Companies will be required to disclose revenue and profits on a country-by-country basis, thus making it more difficult to pull a sleight of hand with profits. This is expected to make it easier for the UK’s HM Revenue and Customs to suss out just how much revenue a company really generates in each market.

It’s expected that if you combine that with the number of people a corporation employs in each country it will give a clearer scope of a company’s operations in a given country.

And if that doesn’t work, you could always look at a company’s public filings. Google, for example, reported around $1.7 billion in revenues (not profit) in the UK in the last quarter of 2014. In contrast, the company paid £20 million in income taxes in the UK on revenues of £3.6 billion.

Similarly,  Amazon posted UK revenues of £4.5 billion in 2013 but paid only £4.2 million in UK taxes. Of course, Amazon is well known for eschewing profits, so that might not be sign of tax evasion.


image  by Alan Cleaver

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fjtorres March 9, 2015 um 10:02 am

All this will achieve is make more multinationals adopt the Amazon model: spend all profits into growing the company.
One way to achieve it is by buying competitors and suppliers, and by dropping prices to put competitors out of business.

This could be fun, watching it blow up in their faces.

puzzled March 9, 2015 um 5:43 pm

The Amazon model doesn’t work if the UK taxes the UK profit, without giving Amazon the ability to lay off the spending it does on other projects in the US) or elsewhere).

Globally, Amazon doesn’t make a profit (net profit is the same as net cost of business), but on a country-by-country basis, Amazon brings more money on than it spends.

Darryl March 9, 2015 um 12:40 pm

This sort of measure, if it does produce any revenue, generally only does so for the usually short period while the Companies concerned re-structure their operations to move on to the next legal "avoidance" arrangement. Tax systems rely for their jurisdiction on concepts like "residence" and "source" which are simply not appropriate to Internet Commerce. These concepts are also at the heart of tax treaties between countries. New concepts and tax treaties implementing them are probably the only way to tackle internet commerce effectively, but needless to say this is most unlikely to happen.

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