back to article Firms will have to report OWN diverted profits under 'Google Tax' law

Under the so-called "Google tax" regime due to come in next year, multi-nationals will have to "self-report" any diverted profits to HMRC and then defend their own activities, according to draft legislation on the Diverted Profits Tax published today. Last week chancellor George Osborne pledged to slap a 25 per cent tax on …

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  1. tmTM

    "little administrative detail provided to help companies prepare for the new rules"

    Which broadly translates to:

    We're still not quite sure how we're going to dodge around this new law.

    1. Anonymous Coward
      Anonymous Coward

      Re: "little administrative detail provided to help companies prepare for the new rules"

      And it's wishy-washy "guidance" and legislation like this that allows companies to construct ways around existing tax laws.

      Give it a few months and they'll come up with another scheme making the "google tax" useless - much like those drafting the law in the first place.

    2. Flocke Kroes Silver badge

      It is only a draft law

      On the day a finished law is actually passed, the accountants will know precisely how to avoid the new tax.

      1. Timmay

        Re: It is only a draft law

        But isn't this draft law designed to be generalised and a catch-all? So it's basically a law against using legal and obviously immoral loopholes?

        It's basically saying, "if you utilise a scheme which clearly diverts profits out of the UK, you have to tell us, and then justify those actions"

        I'm not sure how you'd work around something like that, but then I'm not a devious wanker corporate accountant.

        1. AMBxx Silver badge

          Re: It is only a draft law

          Immoral tax? As soon as morals came into the discussion, we all handed a big pay day to the accountants. Tax law needs to be simple, easy to understand and hard to dodge.

          1. Version 1.0 Silver badge

            Re: "simple, easy to understand, and hard to dodge"

            Pick any two - you can only pick two.

        2. Anonymous Coward
          Anonymous Coward

          Re: It is only a draft law

          "if you utilise a scheme which clearly diverts profits out of the UK, you have to tell us, and then justify those actions"

          OK we did it to maximise profits.

          There, simple enough Mr Taxman?

          1. codejunky Silver badge

            Re: It is only a draft law

            @ Lost all faith...

            "OK we did it to maximise profits.

            There, simple enough Mr Taxman?"

            Or even- We earned it, what did you do today?

            Although the taxmans response is nearly always a bill.

          2. Anonymous Coward
            Anonymous Coward

            Re: It is only a draft law

            Sounds like they are applying similar rules to the one for personal taxation where if you use a tax avoiding scheme you are required to inform the taxman of this and they can then decide if it's legal or not ... and if you don't tell them then it probably becomes by definition tax evasion and gets added penalties. Given that the diverted profit tax is more than normal corporate taxes then think the whole idea is to get companies to correctly declare their UK derived profits. Is choice is pay tax in the UK, or pay more tax on profits you move elsewhere or be liable for tax evasion penalties.

        3. Smooth Newt Silver badge
          Thumb Down

          Re: It is only a draft law

          >But isn't this draft law designed to be generalised and a catch-all?

          No. It's a draft law designed to make the Government look as if they are doing something about tax avoidance by large corporations. Why do you think they are doing it now, rather than several years ago?

          They are caught between the Devil and the deep blue sea - they don't actually want to piss off those corporations because that is where their political donations, comfy directorships etc come from, but at the same time they don't want to piss off the great unwashed who get to vote for a new Government in May.

          So, some handwaving to appease the peasants before election time, and then back to business as usual.

        4. Tom 35 Silver badge

          Re: It is only a draft law

          "I'm not sure how you'd work around something like that"

          justify those actions.

          - It's good for the economy.

          Job done.

          As long as they don't say what counts as justification I'm sure they can come up with something to keep everyone happy.

        5. Phil O'Sophical Silver badge

          Re: It is only a draft law

          It's basically saying, "if you utilise a scheme which clearly diverts profits out of the UK, you have to tell us, and then justify those actions"

          But isn't that essentially creating a "guilty until proven innocent" situation?

          Laws should be simple: You can do what you want except this, if you do do that you'll be in trouble. They shouldn't be trying to second-guess the lawyers.

          Of course there is the old pre-EU-joke (Churchill?):

          - In England, everything is permitted except what is forbidden.

          - In Germany, everything is forbidden except what is permitted.

          - In France, everything is allowed, even what is prohibited.

          - In the Soviet Union, everything is prohibited, even what is permitted.

          so how do we get any international agreement...

          1. DavCrav Silver badge

            Re: It is only a draft law

            "But isn't that essentially creating a "guilty until proven innocent" situation?"

            Not really. If you are found by police standing over a dead body with a bloody knife, you would have to "justify yourself" as well.

            Diverted profits should be considered tax evasion unless there's a reason for diverting them. I think that's an entirely reasonable position. By which I mean: you have definitely done something that looks like a crime (tax evasion). Unless you can provide an alibi (the justification above) you look guilty beyond reasonable doubt.

            Another way to think about it: if an unemployed person with no rich relatives turns up to the bank with a suitcase with £10m in it, they will definitely be arrested, and will have to come up with a good reason why they have £10m in a suitcase. The fact they possess it would probably be enough to go for handling stolen goods beyond reasonable doubt, because there is no reasonable way any person without a very high-paying job can lay their hands on £10m.

            1. Phil O'Sophical Silver badge
              WTF?

              Re: It is only a draft law

              Not really. If you are found by police standing over a dead body with a bloody knife, you would have to "justify yourself" as well.

              No, not in the UK. The courts would have to prove that you had done something wrong with the knife.

              By which I mean: you have definitely done something that looks like a crime (tax evasion). Unless you can provide an alibi (the justification above) you look guilty beyond reasonable doubt.

              Are you serious? You're planning to punish people just because they look guilty?! Maybe you'd like to waterboard them until they confess?

              a good reason why they have £10m in a suitcase. The fact they possess it would probably be enough to go for handling stolen goods beyond reasonable doubt, because there is no reasonable way any person without a very high-paying job can lay their hands on £10m.

              Outside of winning the lottery, or finding it abandoned in a taxi, you mean?

              However they came by it is irrelevant, if they cannot be proven to have commited a crime, they cannot be punished for it.

              If the law allows these companies to divert their taxes then the law is an ass and should be changed. Until it is the companies have committed no offence, however immoral you may consider their acts to be.

              1. Anonymous Coward
                Anonymous Coward

                Re: It is only a draft law

                "Are you serious? You're planning to punish people just because they look guilty?! Maybe you'd like to waterboard them until they confess?"

                Doesn't need to: Russell Brand, The Grauniad, and the assorted politicos are already lining up to do that.

                "If the law allows these companies to divert their taxes then the law is an ass and should be changed. Until it is the companies have committed no offence, however immoral you may consider their acts to be." - problem is, based on the record of governments over the last 15 years, it _will_ be changed. To something much much worse. Things that were publicly stated to be purely for catching terrorists ended up being used for checking whether children are going to the right schools; if that example is anything to go by, an attempt to take more tax from multinationals will end up meaning more loopholes created and a lower overall tax take.

                If the concern is the UK is not getting it's fair (define fairness, please, HMRC - is the Vodafone deal fair to Joe Public, small business owner?) share of tax because of Ireland's attractive 12.5% rate, cut the UK rate to 12.5%, impose a flat no-loopholes rule with absolutely no loopholes for anyone whatsoever (no matter how cuddly), and so on.

                1. Roj Blake Silver badge

                  Re: It is only a draft law

                  "If the concern is the UK is not getting it's fair (define fairness, please, HMRC - is the Vodafone deal fair to Joe Public, small business owner?) share of tax because of Ireland's attractive 12.5% rate, cut the UK rate to 12.5%, impose a flat no-loopholes rule with absolutely no loopholes for anyone whatsoever (no matter how cuddly), and so on."

                  And then what do you do when Ireland cuts its rate to 10%? Cut our rate too?

                  Guess what Ireland's response to that would be? That's right: 7.5%

                  Pretty soon no no multinational would need to pay very much at all.

                  1. codejunky Silver badge

                    Re: It is only a draft law

                    @ Roj Blake

                    "Pretty soon no no multinational would need to pay very much at all."

                    And thats bad? If the only selling point a country has is it will take less tax then there is something wrong with the country. If your selling point is that you will steal less money from those who earn it then that is what the companies will focus on. If multinationals get a better deal elsewhere (robbed less and the capacity of the country to cope with the job).

                    Blindly taking more and more while providing less and less will definitely make the companies look elsewhere and it is us who will lose the jobs, the tax money and the other benefits of each company.

                    1. Andrew Meredith

                      Re: It is only a draft law

                      "Blindly taking more and more while providing less and less will definitely make the companies look elsewhere and it is us who will lose the jobs, the tax money and the other benefits of each company."

                      In Google's case the issue is that their sales to UK firms are being dressed up as IE sales and taxed in IE at the lower rate. In order to take their bat and ball and walk they'd have to stop selling to UK firms. Not sure even the most spiteful of firms would actually close their doors to a lucrative market just so they could cock a snoot at the tax authorities.

                      1. codejunky Silver badge

                        Re: It is only a draft law

                        @ Andrew Meredith

                        "In Google's case the issue is that their sales to UK firms are being dressed up as IE sales and taxed in IE at the lower rate. In order to take their bat and ball and walk they'd have to stop selling to UK firms. Not sure even the most spiteful of firms would actually close their doors to a lucrative market just so they could cock a snoot at the tax authorities."

                        Depends how abusive the gov is. The gov didnt earn any of that money but feel entitled to it, the same as with our hard earned cash. The gov set up the rules and are happy with it, until now that they want more money the adjust the rules and call it a 'google tax'. That alone is not particularly friendly. It is google who earn money, pay tax and employ people in this country. By attacking them (and the way this has been done at least is an attack) it is the gov who is having a strop and up to google to decide how much effort we are really worth. I doubt they will leave either but they will have plenty options to cause problems to the ingrates

                        1. Alan Brown Silver badge

                          Re: It is only a draft law

                          "Not sure even the most spiteful of firms would actually close their doors to a lucrative market just so they could cock a snoot at the tax authorities."

                          Wouldn't they? Google pulled out of China with far more at stake.

                          If Google was to close its doors in the UK and refuse to take on UK advertisers, you can rest assured that the German/Spanish Newspaper fiascos would seem like mere trifles in comparison.

                          Seriously: The loss of income to the companies which advertise (nobody advertises unless there's profit in doing so) would be sufficient that the govt of the day would probably find itself the loser of a confidence vote in Parliament. MPs on all sides would be facing brickbats in their constituency offices, no matter what their political affiliation.

                      2. Alan Brown Silver badge

                        Re: It is only a draft law

                        "In Google's case the issue is that their sales to UK firms are being dressed up as IE sales and taxed in IE at the lower rate."

                        VAT is now paid in the customer's country at the customer's VAT rate.

                        Taxing gross/net income is another kettle of fish and there are ways of dealing with them without killing the Golden Goose.

                2. Alan Brown Silver badge

                  Re: It is only a draft law

                  if the UK eliminated the umpteen volumes of exceptions in tax law, they'd probably be able to get more in with a 12.5% tax rate than they do now - and probably net more because they could lay off 2/3 of HMRC staff.

                  This isn't pie in the sky handwaving. It's been done before. The important thing is to stamp out the plethora of exemptions and loopholes which can be exploited (including the varying rates of VAT, which are a fraudster's wet dream)

                  1. codejunky Silver badge

                    Re: It is only a draft law

                    "if the UK eliminated the umpteen volumes of exceptions in tax law, they'd probably be able to get more in with a 12.5% tax rate than they do now - and probably net more because they could lay off 2/3 of HMRC staff."

                    I keep looking for a political party that dares this kind of honesty. But this is a tax/state loving country no matter how much they moan about the leadership.

  2. Flocke Kroes Silver badge

    552 pages for the draft bill + 126 pages of explanatory notes

    That puts this law well beyond the comprehension of 99% of politicians, and they are going to vote on this.

    I can see this law making money for lawyers to argue about it, but the projected revenues must be like 84.7% of statistics: made up on the spot.

  3. Kevin Johnston Silver badge

    They just don't get it

    Currently these 'diverted profits' are written down as Franchise costs or IP costs etc etc. Why on earth does HMRC* think that they can produce a piece of legislation which achieves what they think they want? They have never managed it before and the multi-nationals have a lot more reasons to side-step the laws than HMRC* have to write them.

    Can't wait for the first company to report every single purchase and salary payment they make throughout the year as diverted profit and drown HMRC in paperwork.

    *OK, yes I know that technically it is not HMRC that write the laws but...

    1. Anonymous Coward
      Anonymous Coward

      Re: They just don't get it

      Actually, in the case of Google at least, there is no franchise or IP cost; they just have an Irish company signing all the contracts. The EU single market makes it possible to declare all your profits in a single country, to alleviate the burden of filling tax forms. It is true that Google happens to also have a company in the UK, but that is technically irrelevant.

      1. jonathanb Silver badge

        Re: They just don't get it

        There are franchise and IP costs, charged to the Irish company, to move the profits even further offshore, so they don't pay anything like 12.5% tax on their profits. The Irish authorities are generally happy to allow 95% of the profits to be shifted in this manner.

        1. Anonymous Coward
          Anonymous Coward

          Re: They just don't get it

          That is, in fact, irrelevant to the situation with the UK. Even if the Irish government plugs its IP loophole, the UK government would still not see a penny more in tax revenue.

    2. Alan Brown Silver badge

      Re: They just don't get it

      "Why on earth does HMRC* think "

      This isn't HMRC thinking. This is the brainchild of a committee of some career-civil servants in an ivory tower somewhere, promoted on seniority, not on abilities and who don't have the abilility to think things through.

      Google can, has and _will_ walk out of countries if pushed hard enough.

      Examples: China (entirely), Germany, Spain (media linking).

      It's UK companies who would suffer economically as a result and politicians who'd be chopped in the long term.

  4. Loyal Commenter Silver badge

    Oh boo-hoo, Chas Roy-Chowdhury

    It's your clients that this is targeting, you know the ones avoiding paying taxes in the UK whilst doing business here to the tune of big numbers with lots of zeroes after them. Companies like Google, PayPal, Amazon, Apple, Starbucks, Vodafone, etc. etc. Complaining that you don't yet know how to advise your clients as to how to circumvent these measures seems at best churlish. If these companies decide that it is no longer profitable to do business in the UK as a result, then good. They can all fuck off, and let British businesses fill the gap.

    I have to pay tax on my income, why shouldn't they.

    1. Badvok
      FAIL

      Re: Oh boo-hoo, Chas Roy-Chowdhury

      "I have to pay tax on my income, why shouldn't they."

      Because they don't get any income, they make a profit that is then distributed to share holders as income which IS taxed, just not in the same country that the profit was made in.

      1. Loyal Commenter Silver badge

        Re: Oh boo-hoo, Chas Roy-Chowdhury

        Because they don't get any income, they make a profit that is then distributed to share holders as income which IS taxed

        Except some of those companies (Apple I'm looking at you) are very well known for not paying dividends to their shareholders entirely to avoid paying the taxes involved.

        1. Badvok
          FAIL

          Re: Oh boo-hoo, Chas Roy-Chowdhury

          "Except some of those companies (Apple I'm looking at you) are very well known for not paying dividends to their shareholders entirely to avoid paying the taxes involved."

          And in your wonderful naive view of the world Apple has all that cash tucked away under a shed load of mattresses doing nothing, certainly not oiling the machinery that keeps our largely capitalist world a spinning.

          1. jonathanb Silver badge

            Re: Oh boo-hoo, Chas Roy-Chowdhury

            They do have a lot of cash stuffed under several shed loads of mattresses. $25.16bn of the stuff as of 27 Sept 2014 when they filed their most recent set of accounts - https://uk.finance.yahoo.com/q/ks?s=AAPL

            1. Badvok

              Re: Oh boo-hoo, Chas Roy-Chowdhury

              @jonathanb: I think the Federal Reserve would have a teeny bit of an issue with Apple stashing away that amount of hard cash and keeping it out of circulation. Weird that your reference actually points to the amount of money they have stored in banks and other 'cash' investments rather than the hard cash you allude to.

              You do know that when the bank says you have $100 in your account that doesn't actually mean there is a $100 bill stored away somewhere safely just for you, don't you? I guess not, so it may come as a shock when you find out that the bank doesn't even have that $100, it has lent it out to someone else!!!OMG!!!

    2. codejunky Silver badge

      Re: Oh boo-hoo, Chas Roy-Chowdhury

      @ Loyal Commenter

      "I have to pay tax on my income, why shouldn't they."

      You steal from me, why dont you steal from them too? They even have more stuff than me so you should rob them more than me! Please....

  5. ratfox Silver badge
    Paris Hilton

    Weird

    It sounds like this is not creating any new tax burden, is it? What is it exactly that would stop Google from just declaring all over the same thing: "We have an Irish company selling a lot of ads, and according to EU laws, you cannot tax that. We also have a UK company, which is just an intermediary and hardly making any money; go ahead and tax it."

    1. DavCrav Silver badge

      Re: Weird

      "It sounds like this is not creating any new tax burden, is it? What is it exactly that would stop Google from just declaring all over the same thing: "We have an Irish company selling a lot of ads, and according to EU laws, you cannot tax that. We also have a UK company, which is just an intermediary and hardly making any money; go ahead and tax it.""

      They are probably going to claim that it's the UK office that sells the ads and Google are lying.

  6. NumptyScrub

    I love how the tax expert deliberately misses the point

    Roy-Chowdhury said: "It's a bit like reporting yourself to the police and then having to defend yourself."

    He added: "It seems strange that multinationals would have to report themselves and the the onus is on them to defend their [tax activities.]"

    That's the whole point of the legislation; to ensure multinationals have defensible tax strategies, rather than, say, indefensible ones. Or in other words, if you don't think you can defend yourself successfully upon being (self) reported to the police, then you should change your tax strategy to one that you can successfully defend.

    1. Anonymous Coward
      Anonymous Coward

      Re: I love how the tax expert deliberately misses the point

      Google et al have been investigated multiple times by the HMRC, and had to explain how what they were doing could be legal. Every time, the result of the investigations was that they were doing nothing wrong. They already have a defensible strategy.

      For things to change, the government must find a way to make their actions illegal. Asking them to repeat the explanations they already gave is useless.

      1. NumptyScrub

        Re: I love how the tax expert deliberately misses the point

        Which is exactly why I find his statement jarring; if current tax strategy is already defensible then reporting yourself is not an issue, and if current tax strategy is not defensible (aka illegal) then your employees are already supposed to report you because "business ethics".

        He's attacking the part of the legislation that changes nothing, rather than the bit where they want a percentage of monies that are currently left untaxed. Which is odd, and leads me to suspect that the bit adding new tax is actually full of holes and this is an attempt to distract people from it.

        The more things change, eh?

  7. dogged

    This is what happens when you pay tax avoidance specialists like PwC to write your tax laws.

    Tory outsourcing at its finest.

    1. Anonymous Coward
      Anonymous Coward

      "Tory outsourcing at its finest."

      Financially efficient and by competent agents you mean, as opposed to Labour outsourcing which generally wasn't?

      The previous Labour government undertook a vast programme of outsourcing at a time when most current senior Labour politicians were either ministers or their advisers. Their ongoing criticism of G4S and Serco over tagging, or Atos over its work in disability assessments, is blunted by the fact that all these contracts were first let under Labour.

    2. Anonymous Coward
      Anonymous Coward

      I think you'll find the multi-millionaires of Liebours front bench are responsible for this for this when the one eyed son of the manse signed the Lisbon treaty while he thought the cameras weren't filming.

      It always makes me seethe when I hear the chair-person of the PAC (Labour) talking about morals - but doesn't mention her own familys tax dodging business.

      That old adage springs to mind: "You show me a socialist, I'll show you a hypocrite"

      1. dogged

        > I think you'll find the multi-millionaires of Liebours front bench are responsible for this for this when the one eyed son of the manse signed the Lisbon treaty while he thought the cameras weren't filming.

        No, this one is all down to Little Gideon. Apparently he noticed that tax was hard and hired some lovely chaps who'd been to Eton to have their lackeys do it for him. Now tax law is written by the big four tax avoidance consultancies. Seems crazy but it's true.

        This is not to say that Labour were any better - they weren't. But a tax policy written so that anyone with enough money can pay PwC et all to avoid paying any of it is a very Tory policy indeed.

        1. arrbee
          Holmes

          I think you'll find that all of the major (and not so major) political parties now get their financial and tax policies drawn up for them by the big 4 consultancies.

          Where do you think the concept of limited liability partnerships came from ?

  8. The Mole
    FAIL

    Roy-Chowdhury said: "It's a bit like reporting yourself to the police and then having to defend yourself."

    He added: "It seems strange that multinationals would have to report themselves and the the onus is on them to defend their [tax activities.]"

    My understanding is this is exactly what self employed/small business owners/contractors have to do whenever they fill in self assessment/tax forms and are trying to claim a reduction on their taxable income (ie expenses).It must be so hard for this struggling multinationals that only employee a few hundred accountants and lawyers to do the same.

    1. ciaran

      Absolutely

      Self declaration is the basic principle of taxation since the beginning.

      Then you get audited and if your declarations are incorrect, you're screwed.

      Personally I think tax auditors should be freelance and they should get a percentage of any extra revenue they extract from their targets. They would target the big fat estates and leave us little buggers mostly alone.

      1. Anonymous Coward
        Anonymous Coward

        Re: Absolutely

        Correction. If you're an individual, you get screwed.

        If you're a massive multinational like Vodafone, you get a cosy sweetheart deal arranged behind closed doors that lets you off the hook.

      2. Alan Brown Silver badge

        Re: Absolutely

        "Personally I think tax auditors should be freelance and they should get a percentage of any extra revenue they extract from their targets. They would target the big fat estates and leave us little buggers mostly alone."

        Counterpoint to that argument: Witchfinders.

        There's a bloody good reason that auditors don't get a percentage of those they accuse.

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