UK 'Google tax' will target inter-company payments

Tue Dec 9, 2014 7:14pm EST
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By Tom Bergin and William James

LONDON (Reuters) - A new British tax on companies that shift profits out of the country and into tax havens will target inter-company fees for services like use of intellectual property, according to a Treasury document seen by Reuters.

Companies will also be required to report their potential liability to the new tax, which the note said will sit outside the existing corporate tax system. That is intended to avoid legal challenges under existing tax treaties with countries like Ireland, a major conduit for shifted profits.

The Treasury document said that the 25 percent tax would be effective April 1, 2015, and would target conduit-type structures, such as the "double-Irish" used by Google.

In that manoeuvre, Google denies having a taxable presence in its main business in Britain and reports its annual UK revenue -- more than $5 billion -- in Ireland. It then pays most of this to a Bermudan affiliate as a fee for using Google intellectual property.

Under the new rule, the charge paid to the Bermudan affiliate could be reduced by the UK tax authority when assessing how much profit is linked to UK activities.

The Treasury and HMRC declined to comment on the application of the new tax before the publication of the draft 2015 Finance Bill on Wednesday, when further details will be released.

Corporate tax avoidance has become a big political issue in Britain in recent years.

Treasury minister David Gauke told parliament on Tuesday that the diverted profits tax (DPT) announced last week was "an example of where the Government are taking tough, practical action to ensure that everybody pays what is required under the law."   Continued...

A Google logo is seen at the garage where the company was founded on Google's 15th anniversary in Menlo Park, California September 26, 2013. REUTERS/Stephen Lam/Files