A diverted profits tax has been announced today, to which I have already referred. I gather we will learn no more about it until next week, so I am left speculating on how it might work.
What we know is that this will raise more than £250 million in 2015 and over £300 million a year after that. That's significant. It means more than a billion of profits will be brought within the scope of this new 25% tax charge - and there is no clue given why that rate is being used.
So how will the Revenue prove profit diversion. The obvious example is Google which in 2013 said it had worldwide profits of just less than $14.5 billion and made 10% of its sales in the UK and yet paid almost no corporation tax here. Will HMRC do a simple apportionment and say 10% of those profits should be here then? If so Google could be asked to pay tax of maybe £200 million in the UK as a result. That would meet most of the budget for the new tax by itself.
But to do this would be revolutionary. It would mean that the UK was introducing a unitary apportionment tax of the type I have long argued for and which has always been rejected by the UK and also the OECD.
If it is not this, then what is it? I rather hope we will see tax on a unitary basis using country-by-country reporting as the basis of calculation, because this would be the start of a revolution in UK and worldwide corporate taxation. Bt does this Chancellor really have the willing to do that?
We'll have to wait and see.
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Significant compared to if Osborne & Gauke hadn’t relaxed tax on Controlled Foreign Corporations (ideally never would have)?
I remember a stand up comic’s joke about Dan Quayle, vice president of the US back in the days of George Bush senior. It’s was something to do with ‘What is the point of Dan Quayle?’, and the point was that he ensured that no-one would assassinate the president, just by his existence as vice president- since then they’d get Quayle in the oval office.
I think some of Osborne’s manouvres in the international tax sphere have a similar logic – he’ll make a start on a few great initiatives which really have the potential to scupper jurisdiction-hopping. But he won’t actually finish the job.
Nobody really knows how the multinationals choose who wins the general election, nor who owns all those BVI companies who in turn own the W1 postcode district. And as long as the Conservative party keeps getting reelected, then the job will never quite get finished. But if anything should happen to the natural party of low corporate tax, then it’ll take a matter of weeks for the new government to close that window… Far safer to keep paying the protection…