'Google tax' to crack down on avoidance by internet firms in UK

Simon Goodley
The Google office in St Pancras, London. Photograph: Jeff Blackler/Rex/Shutterstock

Internet companies that legally avoid taxes by shifting profits overseas face being taxed on royalties on UK sales in a move dubbed the “Google tax”.

The measure, predicted to raise about £200m a year, forms part of the government’s latest package to tackle tax avoidance and evasion, which the chancellor predicted would raise a total of £4.8bn by 2022-23.

In his budget speech, Philip Hammond said: “Multinational digital businesses pay billions of pounds in royalties to jurisdictions where they are not taxed – and some of these royalties relate to UK sales.

“So, from April 2019, and in accordance with our international obligations, we will apply income tax to royalties relating to UK sales, when those royalties are paid to a low-tax jurisdiction.”

The move comes after international criticism of the taxes paid by huge digital businesses such as Google and Amazon, which route their profits through low-tax states.

A recent study found Amazon paid 11 times less corporation tax in the UK than British bookstores. Last year, Google agreed a deal with British tax authorities to pay £130m in back taxes and bear a greater tax burden in future.

The push to claw more taxes from digital businesses came as part of the chancellor’s yearly assault on tax evasion and avoidance.

He said the government had secured £160bn in additional tax revenue since 2010, and that his latest steps would raise £4.8bn. The figure includes £2.3bn of additional tax revenues brought in after committing £155m in new resources for HM Revenue & Customs.

HMRC is also benefiting from having the time it has to investigate all offshore tax non-compliance extended to 12 years, in the Treasury’s response to offshore exposés such as the Panama and Paradise Papers.

The government will also publish a consultation on the proposal that designers of offshore structures that could be misused to evade taxes will be required to notify HMRC of these structures and the clients using them.

Frank Field, the Labour MP who chairs the Commons’ work and pensions committee, and who has led a series of campaigns highlighting tax avoidance, said: “The budget offers the beginnings of a fightback against some of the most egregious and morally bankrupt methods of tax avoidance exposed by our campaign.

“But taxpayers will expect a whole series of additional steps to follow, if this mega injustice is to be countered for good.”

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