Diageo to Pay $140M U.K. ‘Google Tax’ Penalty Next Month

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By Ben Stupples

Diageo Plc, the world’s largest distiller, will pay its 107 million pound ($140 million) ‘Google tax’ charge to the U.K.’s tax authority next month, in the latest development on the controversial penalty.

Any company that receives a diverted profits tax assessment from Her Majesty’s Revenue and Customs must pay the disputed amount in question before they can officially attempt to recover it.

“Accordingly, Diageo intends to challenge the assessments and in order to do so will have to pay in August 2017 the full amount assessed and then continue to work to resolve this matter with HMRC,” the London-based maker of alcoholic beverages said in its half-year results, published July 27. “The payment of this amount is not a reflection of Diageo’s view on the merits of the case and, based on its current assessment, Diageo believes no provision is required in relation to Diverted Profits Tax,” it added.

The disclosure comes after Diageo, which produces Johnny Walker and Smirnoff, warned May 10 that the U.K.’s tax authority intended to issue the company preliminary notices of assessment under the diverted profits tax, known as the “Google tax.” HMRC issued them both June 2, relating to the 2015 and 2016 financial years that ended June 30, Diageo said July 27.

Multinational Battles

It also comes as two other multinational companies with U.K. operations battle HMRC on the DPT.

London Stock Exchange Group Plc, Europe’s second-largest stock exchange, warned March 3 it has an accounting provision of 4.5 million pounds due to “uncertain tax positions” that included the tax

Switzerland-based conglomerate Glencore Plc, meanwhile, plans to appeal the U.K. High Court’s refusal to grant it permission to apply for a judicial review of a 21.3 million pounds DPT charge.

In addition, Lloyd’s of London insurer Beazley Plc warned last week about a future DPT charge from HMRC as it plans to expand operations in Ireland after the U.K.’s vote to leave the European Union.

The company believes “that no liability arises” after assessing the risk of an assessment, the London-based company said it its half-year results, published July 21. But the “ultimate outcome may differ.”

Company Profit Shifting

The U.K. introduced the DPT in 2015 amid concern that Google parent Alphabet Inc. and other global tech companies were engaging in tax planning to shift their profits to offshore havens. Applying equally to U.K. multinationals, it sets a 25 percent levy—higher than the country’s current corporate tax rate of 19 percent—on any profits HMRC deems to have been improperly moved out of the U.K.

At the time, the U.K.’s decision to introduce the DPT sparked controversy, as the country was taking action individually amid the OECD’s efforts to rewrite global tax policy for multinational companies. Since then, however, Australia has implemented a similar measure, with higher penalties.

HMRC Annual Report

The DPT yielded 138 million pounds for HMRC in the latest financial year, according to official data.

In total, HMRC raised 281 million pounds from the DPT for the financial year ending March 31, 2017, according to its 2016-17 annual report, released July 13. The remaining 143 million pounds came from additional receipts from companies changing their tax planning due to the DPT, it said.

The DPT “is an important measure for HMRC and is designed to encourage behavioural change in businesses,” HMRC said in the report. “Last year diverted profits project teams developed new innovative ways of identifying, risk assessing and investigating profit,” it added.

To contact the reporter on this story: Ben Stupples in London at bstupples@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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