04 December 2014

Making policy on the back of a fag packet

Oh yes, the google tax.  What the Chancellor actually said:
Today, I am introducing a 25% tax on profits generated by multinationals from economic activity here in the UK which they then artificially shift out of the country; that is not fair to other British firms and it is not fair to the British people either—today, we are putting a stop to it. My message is consistent and clear: low taxes; but low taxes that will be paid. Britain has led the world on this agenda and we do so again today. This new diverted profits tax will raise more than £1 billion over the next five years.
 More than a bit sketchy.  How will HMRC assess the amount of profits that are diverted, ie artificially shifted out of the UK?  The Guardian illustrates the point:
Google paid just £20m tax in the UK last year. But its actual British revenues were £5.6bn. The group as a whole has a profit margin of 20%, suggesting the company’s real profits in the UK could have been as high as £1.2bn. Taxed at the proposed 25% rate, this would deliver £280m a year in revenues for the Treasury from just one company. But the government expects to collect no more than £360m a year from the diverted profits tax.
Essentially, profits are what is left after deducting cost from revenues; traditionally these costs would include those of production and administration; more controversially, they might include the cost of intra-company loans and rights payments, some of which may be legitimate and some of which less so.  Where does Osborne draw the line?  And how will it impact on international double taxation agreements between governments?

Have Osborne and the Treasury thought it through?


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