UK introduces ‘Google Tax’ to combat tax evasion

As of April 2015, the UK intro­duced a new bud­getary mea­sure tar­get­ing com­pa­nies that have oper­a­tions in the UK, but divert­ing the prof­its off­shore. The new law stip­u­lates that these com­pa­nies will have to pay a Divert­ed Prof­its Tax (DPT) of 25%. It is expect­ed that the tax will con­tribute anoth­er £25 mil­lion to the UK trea­sury this year and over £3 bil­lion over the next 5 years. The aim of the law is also to dis­cour­age the behav­iour of com­pa­nies to divert prof­its out of the UK to off­shore accounts.

The tax has been intro­duced after larg­er com­pa­nies, such as Google, Ama­zon, Apple and Star­bucks have been under inves­ti­ga­tion and heavy crit­i­cism for not pay­ing enough tax­es. For exam­ple, since it has start­ed trad­ing in the UK in 1998, Star­bucks paid a total of only £8.56 mil­lion in cor­po­ra­tion tax, and between 2009 and 2012 they did not pay any cor­po­ra­tion tax at all. The com­pa­ny claimed they only incurred loss­es dur­ing that time, despite sales of over 400 mil­lion in 2011 alone.

The new tax mea­sure tar­gets com­pa­nies oper­at­ing in the UK and gen­er­at­ing over £10 mil­lion annu­al turnover. The com­pa­nies will have to declare this to HMRC (HM Rev­enue & Cus­toms) who will assess if the com­pa­ny struc­ture implies that the prof­its are divert­ed off­shore, and if the com­pa­ny is there­fore liable to pay the DPT.

The Euro­pean Com­mis­sion is also inves­ti­gat­ing cor­po­ra­tion tax arrange­ments of EU mem­ber states, as it came to light that sev­er­al states offered a favourable tax rate to larg­er com­pa­nies, and enabled them to pay very lit­tle or almost no tax.

Mal­ta is a low tax coun­try as well, and many com­pa­nies move their com­pa­ny oper­a­tions to the islands in order to save cor­po­ra­tion tax. How­ev­er, there is no favourable treat­ment to large cor­po­ra­tions, and the same rules apply to every com­pa­ny. The tax­a­tion struc­ture is per­fect­ly in line with EU reg­u­la­tions. You can find more infor­ma­tion about the Mal­ta com­pa­ny mod­el on our web­site.

About Philipp Sauerborn

In 2005, Philipp Sauer­born joined the firm of St. Matthew in Lon­don, one of the lead­ing Ger­man account­ing firms in Eng­land renowned for its exper­tise in cor­po­rate, com­mer­cial and tax law, as a depart­ment head. After three years, he was a part­ner and man­ag­ing direc­tor.
Towards the end of 2011, he decid­ed to move to Mal­ta, where he first worked at inter­na­tion­al law firms and con­sul­tan­cies in an employed and con­sult­ing capac­i­ty. Since the begin­ning of 2013, he has been a senior employ­ee at Dr. Wern­er & Part­ner. Mr. Sauer­born is cur­rent­ly com­plet­ing his ADIT ‑Advanced Diplo­ma in Inter­na­tion­al Tax.

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