In an effort to counter multinational companies, like Google, who use legal loopholes to avoid paying taxes, British Chancellor George Osborne has proposed a new tax which would take 25% percent of the profits from major tech companies.
Although it has been commonly referred as a “Google Tax”, any multinational companies that earn at least £250 million ($376 million) in annual revenue would have to pay this tax. This tax is higher than the 20% corporate tax that most companies currently pay in the UK. It’s estimated that the British government could rake in £1 billion ($1.5 billion) over a five-year period, from this new tax.
In addition to the “Google Tax”, Osborne also wants to include stricter reporting requirements for multinational companies. Under the new rules, countries would be required to disclose their revenue on a country-by-country basis, as well as report how many employees they have in the UK. These new rules are put in place in an attempt to close loopholes used to avoid paying taxes.
Despite having extensive operations in the country, many multinationals, like Google, are considered to not have “permanent establishment” in the UK. This allows them to avoid paying taxes on most of their revenue. With the new rules in place, the government can determine to what extent these companies operate in the UK, and tax them accordingly.
Tech companies have already started pushing back on this proposal. The National Foreign Trade Council, a lobby group that represents hundreds of tech companies like Google and Microsoft, has warned that this tax could cause a decrease in investment by tech companies in the UK. Others have criticized the tax as doing too little to prevent tax avoidance by these large companies. Toby Ryland, a partner at accountants HW Fisher & Company, has raised the concern that double taxation treaties with other countries will limit how much this new tax will accomplish, and that multinationals will easily sidestep the new rules.
Do you think this new tax is the right move by the UK government? Leave your comments below.