The Tax Management Transfer Pricing Report ™ provides news and analysis on U.S. and international governments’ tax policies regarding intercompany transfer pricing.
By Ben Stupples
The U.K. government’s receipts from “Google tax” charges on global businesses have increased 60 percent, a signal the measure may beat its original forecasts for a second straight year.
The government collected 221 million pounds ($298.8 million) from diverted profits tax charging notices in the financial year that ended March 2018, according to its latest summary of tax receipts. In the previous 12 months, the U.K.’s tax authority collected 138 million pounds from the charges.
The U.K. government’s diverted profits tax, or DPT, forms part of its attempts to combat what it perceives as abusive cross-border tax planning from global companies. Since May 2017, U.K.-based drinks company Diageo Plc and U.S. business The Cooper Companies have publicly disclosed their DPT charging notices from Her Majesty’s Revenue and Customs, the U.K.’s tax authority.
HMRC’s latest data on the DPT “certainly shows they’re busy with it, which matches my experience,” Ian Hyde, a London-based tax partner at global law firm Pinsent Masons, told Bloomberg Tax May 15. “The DPT is applying more businesses than you would have first thought when it was introduced.”
Nicknamed the “Google tax,” the U.K. introduced its DPT in 2015 amid concerns that Google parent Alphabet Inc. and other multinational technology companies were engaging in abusive tax planning to shift their profits to offshore tax havens. The measure sets a 25 percent levy on profits that HMRC deems to have improperly avoided U.K. corporation taxes, currently set at a rate of 19 percent.
Under the U.K.’s DPT laws, companies must notify HMRC if they have any arrangements that may fall in scope of the tax. If the tax authority believes that a company may owe DPT, it issues a preliminary notice. A charging notice then sets out HMRC’s DPT demands, giving companies 30 days to pay.
In total, HMRC collected 281 million pounds from the DPT in the financial year ended March 2017, according to its latest annual report. The figure merges the 138 million pounds raised directly from the DPT with 143 million pounds derived from companies adjusting their tax plans due to the measure.
In a December 2014 policy paper, the U.K. Treasury said the DPT would raise 270 million pounds in the financial year that ended March 2017, and cited a total of 360 million pounds for the 12 months after that.
Before the end of 2018, HMRC will disclose how much it collected during the financial year that ended March 2018 from companies adjusting their tax planning due to the DPT. This data will accompany HMRC’s April 28 tax receipts summary that cites the 221 million pounds raised from DPT charges.
Companies must pay a DPT charge before they can attempt to dispute the notice with HMRC.
This set-up “makes it a very effective way of forcing people to come to the table,” Hyde said.
In July 2017, Diageo, the world’s largest distiller, said it would pay its 107 million-pound DPT charge the following month. Paying the charge doesn’t reflect its “view on the merits of the case,” it said.
The Cooper Companies Inc., a member of the Standard & Poor’s 500 Index, adopted a similar stance to Diageo over its 31 million-pound DPT charge. The Pleasanton, Calif.-based maker of contact lenses and surgical tools said in its 2017 annual report that it plans to “vigorously” contest the bill.
HMRC, meanwhile, sees the DPT as a significant tool to influence global companies’ tax planning.
The DPT “is an important measure for HMRC and is designed to encourage behavioural change in businesses,” HMRC said in its 2016-17 annual report. “Last year diverted profits project teams developed new innovative ways of identifying, risk assessing and investigating profit.”
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