U.K. Government Cites More Companies in Scope of ‘Google Tax’ (1)

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By Ben Stupples

The U.K. has targeted more global businesses that risk facing its “Google tax,” signaling the possible impact of the government increasing its resources to enforce the controversial measure.

Officials reviewed 16 cases of company structures that may be in scope of the U.K. diverted profits tax during the financial year ended March, rising from 11 in the previous 12 months. Her Majesty’s Revenue and Customs, the U.K. tax agency, made the disclosure July 12 in its 2017-18 annual report.

Like other countries, the U.K. has shown an increasing focus on the international tax affairs of large businesses on the back of the OECD’s ongoing efforts to crack down on abusive tax planning.

“A fair tax system is a critical part of the government’s plan to build a fairer society, and we are clear that everyone must pay the tax that is due, at the right time” the annual report said.

The U.K. introduced the DPT in 2015 amid concern Google parent Alphabet Inc. and other global tech companies were engaging in abusive tax planning to shift their profits to offshore havens. Applying equally to U.K. multinationals, the measure sets a 25 percent levy on profits that the U.K. deems to have improperly avoided local taxes. The country’s current corporate rate is 19 percent.Since 2015, the U.K. tax agency has increased its number of staff working on the DPT to 60 from 40.

In addition, HMRC’s 2016-17 annual report shows its focus on the DPT, noting that its team for the measure had “developed new innovative ways of identifying, risk assessing and investigating profit.”

More DPT Meetings

Senior officials from the U.K.’s tax authority make up a Diverted Profits Board to assess risks from arrangements that are potentially in scope of DPT laws. As part of reviewing the 16 arrangements that may result in a DPT charge, the committee met a total of 21 times in the latest financial year, according to the annual report. During the previous 12 months, the board met on 12 occasions.

Under the U.K. DPT laws, companies must notify the government if they have arrangements that may face the measure. If Her Majesty’s Revenue and Customs believes DPT is due, it first issues a preliminary notice. A charging notice then sets out its demands for DPT, giving 30 days to pay up.

Since the DPT’s introduction, several multinational businesses have faced inquiries from HMRC under the measure, including U.K.-based drinks company Diageo Plc, and Switzerland-based conglomerate Glencore Plc.

For HMRC, DPT charges are a growing revenue source. In the financial year ended in March, the U.K. collected 221 million pounds ($292 million) from DPT charges, a 60 percent rise from the previous 12 months.

Transfer Pricing Board

Elsewhere in its annual report, HMRC reported a drop in cases considered by officials who oversee particular decisions on large or sensitive inquiries on multinationals’ intra-group structures.

The tax authority’s Transfer Pricing Board considered 27 cases in the latest financial year, falling from 32 for the previous 12 months. The board reviews inquiries that don’t require referral to HMRC’s Tax Disputes Resolution Board, its second-highest group for assessing disagreements.

Similarly, the total number of TDRB referrals fell to 38 in 2017-18 from 63 in the previous 12 months.

“This reduction can be explained firstly by normal fluctuations (the number of referrals in 2016-17 was high compared with previous years); and secondly by the effect of streamlining governance processes, which reduced the number of cases seen by these boards,” HMRC’s permanent secretary, Jim Harra, said in the foreword to the report.

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

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

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