In the hopes of raising £3.1 billion, Chancellor of the Exchequer, George Osborne, announced the introduction of the so-called Google Tax last week, as part of the new budget that will take the Conservative Party into the coming elections.
The new tax, named in homage to Google’s controversial money-saving ethos, formally known as the ‘diverted profits tax’, takes aim at companies such as Google, Starbucks, Boots, Vodafone, eBay, Apple, Facebook, Dyson, Shire, Vivienne Westwood and Amazon.
The finance minister said that the new measure would put a halt to companies funnelling money to foreign bank accounts when reclaiming VAT on overheads.
Let the message go out that our toleration for those who will not pay their taxes will now come to an end
Osborne told Parliament.
Although the tax has been well received by members of the public, it has been widely attacked by business leaders throughout the world, who argue that the new measure would in fact “cause a real concern for global business.”
Concern has also been echoed by Robert Preston, the economics editor of the BBC:
The UK is apparently the first country in the world to impose this new breed of allegedly unavoidable corporate tax that’s based on revenues derived in one country. Which raises the intriguing question of what impact it would have on UK companies if other countries followed our lead.
Furthermore, Osborne has also been accused of rushing the tax into the budget in an effort to “satisfy the mob.”
But what good could it do when it is introduced next month?
For starters, it could put an end to tax avoidance by companies such as Starbucks, who paid nothing in corporation tax between 2009 and 2012 – despite generating sales of £400m in 2011.
The new tax means that companies with an annual turnover of £10m will have to inform HM Revenue & Customs (HMRC) if the structure of the company could make them liable for diverted profit tax.
From there, HMRC will assess the structure of the company and decide exactly how much of that profit has been diverted from the UK.
This also means that multinational companies will have a maximum of 30 days to object to the tax, which will be set at 25 per cent.
The European Commission has also taken a keen interest in corporation tax and has been investigating the arrangements of several European Union (EU) states, to determine whether or not those tax arrangements amounted to state aid.
The UK will find out how effective the tax has been in the Autumn Statement, due in December 2015.