‘Google tax’ may be extra-territorial, warns ACCA

THE NEWLY-PROPOSED Diverted Profits Tax designed to prevented multinational companies from shifting UK profits overseas could have an impact beyond HM Revenue & Customs’ jurisdiction, ACCA has warned.

The Diverted Profits Tax will apply a 25% levy to profits generated in the UK by multinational businesses.

But ACCA’s head of taxation Chas Roy-Chowdhury warned that the rule, to be clarified in the Draft Finance Bill out today (Wednesday) could tread on other tax authorities’ toes and undermine existing double-taxation treaties and the OECD’s bid to stop base erosion and profit-shifting (BEPS), to which the chancellor has pledged support.

“Just because the UK says the DPT is not corporation tax, this does not mean that other jurisdictions will accept it as such,” he said.

“We cannot see mutual agreement being obtained from all the UK’s double tax treaty partners, and hence subject to rules outside of the UK’s treaty obligations. We see these rules – which have been devised to bring into the UK around £1bn of economic activity – being challenged by the multinationals it impacts as being extra-territorial and wrapping-up the UK in significant levels of litigation.”

Roy-Chowdhury noted the move could also harm the UK’s attractiveness to businesses trading in the UK, branding it a “highly aggressive piece of legislation”.

“The process will be for the multinational to report itself to HMRC, a form of Disclosure of Tax Avoidance Schemes (DOTAS), and then somehow argue against that reporting once HMRC have imposed the 25% charge,” he said.

“We could understand if HMRC imposed a diverted profit tax charge against the multinational and the company had to then disprove this, but we find it reputationally damaging to the UK where the company has to effectively incriminate itself upfront, and then argue its way out of the situation.”

There has been much controversy over how large multinationals including Google, Starbucks and Amazon have used intra-company loans and royalty payments to drive down their tax bills.

This week, the Public Accounts Committee admonished PwC and pharmaceutical company Shire over tax structures channelling capital through low-tax Luxembourg.

“It’s hard to conclude that this represents anything other than tax avoidance on an industrial scale. You have put in place ludicrously complicated webs of intra-company loans and royalty payments,” committee chairwoman Margaret Hodge claimed.

The draft 2015 Finance Act is to be published on today (10 December 2014) with accompanying guidance on how the new rules, including the Diverted Profits Tax, will operate.

The act, along with the Diverted Profits Tax, is set to take effect from April 2015.