U.K. Initiates First Diverted Profits Case Under ‘Google Tax'

Bloomberg BNA’s Premier International Tax Library is a comprehensive global tax resource. Trust Bloomberg BNA's Premier International Tax Library for the guidance you need on...

By Kevin A. Bell

Sept. 20 — The U.K. tax agency has issued its first notice under the government's controversial diverted profits tax.

The tax applies to multinational companies that use contrived arrangements to avoid having a permanent establishment in the U.K. by diverting profits to related parties in low tax jurisdictions.

Nigel Dolman of Baker & McKenzie in London told a global transfer pricing conference in Hong Kong Sept. 20 that the charging notice against an unnamed company involved a royalty for offshore intellectual property is believed to be the first notice issued under the new tax, which became effective last year amid concerns that global technology companies use complex corporate structures to avoid paying tax in the U.K.

It allows the government to charge a 25 percent tax—5 percent above the standard U.K. corporate rate—on any profits it decides have been improperly moved out of the U.K.

Charging Notice

Under the U.K. legislation, when an officer from Her Majesty's Revenue and Customs determines that the diverted profits tax should apply, HMRC will issue a preliminary notice to the company explaining the amount of the charge and the basis on which it has been calculated, including the details of the amount of the taxable diverted profits.

The company then has 30 days to make representations, and the designated HMRC officer may consider those factors within a further 30-day period before issuing a charging notice on the original amount, or a revised amount, or confirming that no charge arises.

The charging notice requires the company to pay the diverted profits tax within 30 days.

Following the payment due date, there is a 12-month review period during which the charge may be adjusted based on evidence. At the end of the review period, the business has the opportunity to appeal any resulting charge.

To contact the reporter on this story: Kevin A. Bell in Hong Kong at kbell@bna.com

To contact the editor responsible for this story: Molly Moses at mmoses@bna.com

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.