By Lisa Fleisher
LONDON--Should profits derived from a ride in an Uber car in
London be taxed in the U.K.? How about clicking on a Google ad, or
buying a song on Apple's iTunes?
U.K. treasury chief George Osborne on Wednesday introduced a new
25% tax on foreign companies' profits derived from economic
activity in the U.K.-- aiming to rein in what the government says
is tax avoidance by multinationals shifting their tax burden to
lower-tax regimes.
He singled out tech companies as particular abusers of the
system. Though he didn't name names, the British press quickly
dubbed the measure the "Google tax."
"Some of the largest companies in the world, including those in
the tech sector, use elaborate structures to avoid paying taxes,"
he said, adding: "That's not fair to other British firms. It's not
fair to British people either. Today we're putting a stop to it. My
message is consistent and clear: low taxes, but low taxes that will
be paid."
Tax advisers and analysts quickly questioned whether the tax
could be effectively implemented, saying that it would be difficult
to prove that companies were illegally avoiding taxes.
The proposal, which would take effect April 1, comes at a time
when the European Union and individual member states have been
pressuring large U.S. companies to pay more taxes. The Organization
for Economic Cooperation and Development has been reviewing the
ways companies shift profits across borders to lower taxes. The EU,
meanwhile, is investigating whether several countries gave unfair
sweetheart deals to specific companies.
The British government will hold consultations on the new tax
later this month, though it isn't clear when any of the key details
will be fleshed out. Backed by the Conservative majority, the
measures would likely be passed easily by the House of Commons.
The low British tax bills for some U.S. companies have stirred
outrage. Facebook Inc., for example, posted U.K. revenue of nearly
GBP50 million ($78.5 million) in 2013, but that year had a U.K.
corporate tax bill of just over GBP3,000, according to Facebook
filings.
The proposed blanket corporate tax on multinationals' profits
derived from the U.K. is the biggest swipe to date the country has
taken at companies' tax bills. Over the last two years, U.K.
lawmaker Margaret Hodge, chair of a parliamentary audit committee,
has criticized Google Inc. and Uber Technologies Inc., the
car-hailing service, for paying little tax in the country.
Representatives for Google and Facebook didn't return requests
for comment. Spokesmen for Apple Inc. and Uber said the companies
abide by the tax laws in every country.
The U.K. government estimated the tax would generate GBP1
billion in revenue over five years, but officials didn't explain
the methodology for coming up with that figure.
Some tax advisers said they were surprised that the U.K. was
taking action ahead of decisions by other international bodies such
as the OECD.
"It's just unusual, in my mind, that the U.K. has taken the step
of moving ahead of the pack," said Ben Jones, a partner at
Eversheds LLP, a law firm. He said it was likely a reasonable
calculated risk for a relatively wealthy and flourishing
economy.
The key question will be how to determine what constitutes
economic activity, advisers said. That could be more difficult for
multinational tech companies, which often have representatives in
one country selling online services, like ads, that appear in
others.
"That is going to be really difficult to define," said Heather
Self, a partner at Pinsent Masons LLP. "It sounds to me like it's
going to be difficult to apply and very difficult to raise
significant sums of money."
Ms. Self said she also worries about backlash from other
countries that could see the move as violating treaties. "It's
quite an aggressive anti-avoidance measure," she said. "If the U.K.
starts doing this sort of thing unilaterally, I think we're
inviting retaliation."
Nicholas Winning and Jason Douglas contributed to this
article.
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