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New ‘Google’ tax targets 100 multinationals

New ‘Google’ tax targets 100 multinationals

By: Vanessa Houlder  

HMRC says scope of diverted profits tax has taken companies by surprise

Almost 100 big companies have emerged as targets of a new tax aimed at multinationals that “go to extraordinary lengths” to avoid paying money to HM Revenue & Customs.

HMRC said the scope of the “diverted profits” tax, which targets contrived arrangements that shift profits to lower tax countries, had taken some large companies by surprise. It was likely to fuel disputes, the tax authority said, even though there were signs of a change in attitude towards tax planning by large companies.

Jim Harra, director-general of business tax, said: “There has been a significant reduction in appetite on the part of big business from engaging in avoidance and aggressive boundary pushing … But we won’t necessarily see a reduction in the amount of tax in dispute.”

Changes being introduced as part of a worldwide crackdown on “base erosion and profit shifting” were also likely to cause disputes, he said. “We are entering a period of uncertainty about where the boundaries are … Inevitably with those changes there is more scope for dispute.”

The diverted profits tax was originally dubbed the “Google tax” and was met with opposition from US technology companies and other businesses when the UK introduced it last year. Several US technology companies have said they may be affected and in March, Facebook referred to the new tax when it announced a change in its structure. However, when Google announced a £130m tax settlement in January, it emerged that HMRC had judged the company would not have to pay it

The controversy over the Google settlement sparked calls from MPs for more transparency over how HMRC settles disputes. HMRC defended the existing system of scrutiny, under which tax settlements are signed off by three commissioners. Edward Troup, permanent secretary, said there would be “questions of capability, accountability and consequences” if MPs were able to decide that the wrong amount of tax had been agreed.

HMRC said that large businesses had expressed the view that the diverted profits tax was being applied more widely than planned. But this was not HMRC’s position, particularly in view of the extra funds it had been given by the government to check cross-border transactions by multinationals. A risk assessment exercise has identified about 100 cases, although the number is likely to be whittled down — possibly to a few dozen.

The Chartered Institute of Taxation said the impact of the tax was likely to be bigger than the numbers suggested. Glyn Fullelove, chair of its technical committee, said: “Although HMRC may only have identified 100 or so in scope, given the way the tax operates it is likely that many more businesses than this have had to do work to establish for themselves, and to demonstrate to their auditors, that they are not in scope.

“It is also possible some businesses have changed their operations to ensure they are not in scope, and if HMRC anticipate the number in scope is likely to decline, they are probably expecting more behavioural change.”

Copyright The Financial Times Limited 2016. All rights reserved. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.

https://www.ft.com/content/560...

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