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Britain Criticized for Plan to Target Corporate Tax Avoiders Britain Criticized for Plan to Target Corporate Tax Avoiders
(about 11 hours later)
LONDON — Business groups warned Britain’s government on Wednesday that it risked undermining international efforts to rewrite tax rules after officials published plans to target multinational companies, including Google, that use complex strategies to cut their British tax bills.LONDON — Business groups warned Britain’s government on Wednesday that it risked undermining international efforts to rewrite tax rules after officials published plans to target multinational companies, including Google, that use complex strategies to cut their British tax bills.
Details of a new measure, which has become known as the “Google tax,” were released on Wednesday, a week after George Osborne, the chancellor of the Exchequer, promised a crackdown on tax-avoidance strategies.Details of a new measure, which has become known as the “Google tax,” were released on Wednesday, a week after George Osborne, the chancellor of the Exchequer, promised a crackdown on tax-avoidance strategies.
The unilateral nature of Britain’s action came in for sharp criticism from the Confederation of British Industry, the country’s main business lobbying group.The unilateral nature of Britain’s action came in for sharp criticism from the Confederation of British Industry, the country’s main business lobbying group.
The Organization for Economic Cooperation and Development, which is seeking an international agreement on tax-avoidance issues, said it would have been better for the British government to await the outcome of its talks.The Organization for Economic Cooperation and Development, which is seeking an international agreement on tax-avoidance issues, said it would have been better for the British government to await the outcome of its talks.
The low level of taxes paid by some multinational companies has become a big issue in Britain, which has a general election in May. A number of well-known companies use subsidiaries and offshore operations to push profits to jurisdictions where corporate taxes are low. Often this is done through complex transactions including payments made within corporations for interest, royalties or patents. Some companies set up their operations so as not to have a taxable presence in countries where they generate considerable revenue.The low level of taxes paid by some multinational companies has become a big issue in Britain, which has a general election in May. A number of well-known companies use subsidiaries and offshore operations to push profits to jurisdictions where corporate taxes are low. Often this is done through complex transactions including payments made within corporations for interest, royalties or patents. Some companies set up their operations so as not to have a taxable presence in countries where they generate considerable revenue.
Under the highly complicated changes the government outlined Wednesday, the British tax authorities will have extensive powers to levy a special “diverted profits tax” of 25 percent, higher than the normal corporate tax rate of 21 percent. One consequence may be that companies change their structures so they pay more corporate tax, rather than risk exposure to the higher rate.Under the highly complicated changes the government outlined Wednesday, the British tax authorities will have extensive powers to levy a special “diverted profits tax” of 25 percent, higher than the normal corporate tax rate of 21 percent. One consequence may be that companies change their structures so they pay more corporate tax, rather than risk exposure to the higher rate.
John Cridland, director general of the Confederation of British Industry, highlighted the work of the O.E.C.D. to revise international rules.John Cridland, director general of the Confederation of British Industry, highlighted the work of the O.E.C.D. to revise international rules.
“It is unfortunate that the U.K. has decided to go it alone with a Diverted Profits Tax, outside this process, which will be a real concern for global businesses,” he said in a statement. “The legislation will be complex to apply, and if other countries follow suit, businesses will have a patchwork of uncoordinated unilateral rules to navigate, which risks undermining the whole O.E.C.D. approach.”“It is unfortunate that the U.K. has decided to go it alone with a Diverted Profits Tax, outside this process, which will be a real concern for global businesses,” he said in a statement. “The legislation will be complex to apply, and if other countries follow suit, businesses will have a patchwork of uncoordinated unilateral rules to navigate, which risks undermining the whole O.E.C.D. approach.”
There was a similar reaction from Julian David, chief executive of techUK, which represents technology companies.There was a similar reaction from Julian David, chief executive of techUK, which represents technology companies.
“By moving ahead of other countries, with what seems to be a complicated new measure, there is a risk that the U.K. could undermine the good progress that it has been leading through the O.E.C.D.,” he said.“By moving ahead of other countries, with what seems to be a complicated new measure, there is a risk that the U.K. could undermine the good progress that it has been leading through the O.E.C.D.,” he said.
Pascal Saint-Amans, tax director at the O.E.C.D., said that Mr. Osborne’s measure showed “the relevance of the work we have started because countries’ governments are getting nervous and tempted with unilateral action.”Pascal Saint-Amans, tax director at the O.E.C.D., said that Mr. Osborne’s measure showed “the relevance of the work we have started because countries’ governments are getting nervous and tempted with unilateral action.”
Mr. Saint-Amans said it would have been “optimal” for Britain to have waited for an international agreement.Mr. Saint-Amans said it would have been “optimal” for Britain to have waited for an international agreement.
“There are political imperatives in countries when you have elections which may trigger some faster changes than what a purely rational, technical, approach would result in,” he added.“There are political imperatives in countries when you have elections which may trigger some faster changes than what a purely rational, technical, approach would result in,” he added.
If approved by Parliament, which is likely, the tax would go into effect in April. The government said it expected the new tax to generate 1 billion pounds, or $1.5 billion, over five years.If approved by Parliament, which is likely, the tax would go into effect in April. The government said it expected the new tax to generate 1 billion pounds, or $1.5 billion, over five years.
“It will put pressure on people who know they are pushing the envelope,” said Chris Morgan, head of tax policy at the accounting firm KPMG.“It will put pressure on people who know they are pushing the envelope,” said Chris Morgan, head of tax policy at the accounting firm KPMG.
But he added that it did not appear to be structured specifically with Google in mind because, if it had been, then the potential revenue would have been higher.But he added that it did not appear to be structured specifically with Google in mind because, if it had been, then the potential revenue would have been higher.
Ben Jones, a tax partner at Eversheds, an accounting firm, described the move as clever politically before an election. Ben Jones, a tax partner at Eversheds, a law firm, described the move as clever politically before an election.
“I can’t see it costing in terms of multinationals’ not doing business in Britain because Britain is a vital market,” Mr. Jones said. “I think the tax authorities will look at the turnover of these business from accounts that are filed, look at what tax they pay, and apply a sort of smell test that will give them a sense of whether to investigate further.”“I can’t see it costing in terms of multinationals’ not doing business in Britain because Britain is a vital market,” Mr. Jones said. “I think the tax authorities will look at the turnover of these business from accounts that are filed, look at what tax they pay, and apply a sort of smell test that will give them a sense of whether to investigate further.”