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.
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