The 2014 Autumn Statement has sought to bolster the tax bills being paid by fast-growth technology companies through the creation of a ‘diverted profit tax’ policy.
Businesses such as Google, Facebook, Amazon and Airbnb have, in recent years, set up large UK and European bases in London. While attracting talent to Britain through new jobs, and creating valuable aid for smaller startups which incubate with larger firms, Osborne wants to see these businesses paying a tax bill that reflects size.
Saying that the UK will become the “first to make sure that big multinationals pay their share of tax”, the “Google tax” will be a 25 per cent tax on UK profits that were previously being artificially shifted out of Britain.
Osborne added that he wants to make sure these companies are being made to “pay their faire share”. This will, revealed, raise £1bn over the next five years. “I believe in low taxes, but low taxes that will be paid,” the chancellor said.
Factors such as intellectual property payments to holding companies, moving sales to lower tax jurisdictions and the cost of licensing fees to holding company have allowed large multinational to operate in a more tax-efficient way.
The UK has one of the lowest corporation taxes in the world. The fee, which is what businesses pay on profits, currently stands at 21 per cent – and is set to drop to 20 per cent in April 2014. A continued reduction in corporation tax since the coalition took power has sought to strengthen Britain as place that is attractive to both found and establish in.
However, in October it was revealed that US social media giant Facebook had paid no UK corporation tax for a second successive year, after reporting a pre-tax loss of £11.6m in Britain.
Facebook turnover in the UK is defined as “marketing and engineering services”, and channels its advertising revenues through Ireland so that lower tax rates can be paid.
It is unclear how the new tax policy will be implemented without changes to international tax structures, but appears to be a firm indication that Osborne wants the Treasury to be benefitting from the success of global technology companies.
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