U.K. Mulls New Guidance for ‘Google Tax’ on Global Businesses

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By Ben Stupples

The U.K. government is considering new guidance for its “Google tax” to clarify that multinational businesses facing the punitive measure won’t be taxed twice on the same set of profits.

Companies facing the U.K.’s diverted profits tax have a 12-month review period in which the government can change the sum of the charge. In addition, the time frame can be cut short if a business agrees to change its cross-border tax affairs, leading to the company avoiding a DPT charge and paying more U.K. tax.

The U.K.’s tax authority has written to tax advisory firms, though, to address concerns about whether there’s a chance of it charging both DPT and corporate taxes on one set of profits. This situation may arise if a company fails to agree on making any cross-border tax changes during the review period.

In an email to the firms, seen by Bloomberg Tax, Her Majesty’s Revenue and Customs stressed that it’s “comfortable” that U.K. laws make clear that only a DPT charge could apply in this scenario. However, the U.K.’s tax authority is “looking into how we can put this beyond doubt,” it added.

‘No Doubt’ on DPT

In an email to Bloomberg Tax, a spokesman for HMRC echoed its communication with advisory firms. “There will be no double taxation under DPT and we are looking into how we can put this beyond doubt,” he said June 22.

For HMRC, DPT charges are a growing revenue source. In the financial year that ended after March 2018, the U.K.’s tax authority collected 221 million pounds from DPT charges, a 60 percent rise from the previous 12 months.

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

Offshore Activity

The U.K. introduced the DPT in 2015 amid concern that Google parent Alphabet Inc. and other global tech companies were avoiding local corporate taxes by stashing profits offshore. Applying equally to U.K. multinationals, the measure sets a 25 percent levy on profits the British government deems to have improperly avoided U.K. taxes. The country’s current corporate rate is 19 percent.

At the time, the DPT sparked controversy, as the U.K. took individual action amid the Organization for Economic Cooperation and Development’s global project to rewrite tax policy for big companies. Last year, though, Australia enforced a measure similar to the U.K.’s DPT, with higher penalties.

Over the past three years, several multinational businesses have faced DPT inquiries from HMRC, including U.K.-based drinks company Diageo Plc, and Switzerland-based conglomerate Glencore Plc.

Most recently, the Cooper Companies Inc., a member of the U.S. benchmark Standard & Poor’s 500 stock index, said this month it paid a 31 million-pound ($41 million) DPT charge to HMRC. Any multinational that receives a DPT assessment must pay the disputed amount of tax in question before it can begin the process to recover the sum, starting with the 12-month review period.

In line with the U.K.’s DPT laws, Cooper Companies thus said in a June 8 quarterly filing that it paid the charge on Jan. 19. “The company continues to cooperate with the U.K. Tax Authorities to resolve this issue,” said the Pleasanton, Calif.-based maker of contact lenses and surgical tools.

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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