Britain will “lead the world” in implementing this autumn's reforms designed to modernise the international tax system, George Osborne told the Conservative party conference yesterday.
“It was this government that started the global work on changing international tax rules,” the chancellor said. “The future for Britain is to be a low tax country where people play by the rules.”
Osborne is expected to announce what has been dubbed the “Google tax” in his autumn statement on 3 December. Senior OECD officials confirmed yesterday that international agreement is not expected to be reached until late next year on co-ordinated action to address the challenges of the “digital economy”.
‘Low taxes that are paid’
Britain will have the lowest, most competitive business taxes of any large country in the world by the time of the next general election, Osborne told the conference.
“While we offer some of the lowest business taxes in the world, we expect those taxes to be paid - not avoided. Some technology companies go to extraordinary lengths to pay little or no tax here.
“If you abuse our tax system, you abuse the trust of the British people. And my message to those companies is clear: we will put a stop to it. Low taxes, but low taxes that are paid. Part of our effort to reduce our deficit.”
CBI director-general John Cridland said: “Setting low and fair business taxes is the right goal for the UK. The CBI supports transparency on tax and will work with the government to ensure that tax rules are fair on both sides. Companies will always want to operate within the rules.”
BEPS ‘risks’
The chancellor’s targets include Apple, Amazon and Google, all of which have defended their tax arrangements and stressed that they operate within existing tax laws.
Earlier this month the OECD set out, in a report to G20 finance ministers, progress on seven “2014 deliverables” as part of the G20/OECD project to tackle “base erosion and profit shifting” (BEPS). These included action 1, to address “the challenges of the digital economy”.
The OECD’s report noted that the “digital economy” was increasingly becoming “the economy itself”. But certain business models and key features of the digital economy “may exacerbate BEPS risks”. Those risks will be addressed by work on other “actions” in the BEPS action plan, which will take features of the digital economy into account.
The Financial Times noted last night that “many internet companies pay little tax in Britain because they put their main profit-generating activities in lower tax countries like Ireland and ascribe little value to their UK sales and marketing operations”. The paper’s analysis of seven US technology giants found they paid “just £54m” in UK corporate tax. “Their UK turnover was just £1.7bn in 2012, even though their overall sales to British customers totalled $15bn.”
Many technology companies, the FT added, drive down their foreign tax rates by holding key intellectual property in tax havens.
The ability to centralise infrastructure at a distance from the market and sell into that market from a remote location generates “potential opportunities to achieve BEPS”, the OECD officials leading the BEPS project said.
In an article published yesterday on the OECD website Pascal Saint Amans, director of the OECD Centre for Tax Policy and Administration, and Raffaele Russo, head of the BEPS project, wrote: “It does so by fragmenting physical operations to avoid taxation, especially when combined with the increasing ability to conduct substantial activity with very few personnel. One year from now, an agreement will be reached so that this will not be possible anymore.”
Responding to Osborne’s announcement, ActionAid tax policy adviser Diarmid O'Sullivan said: “The ‘Google tax’ [proposed] today will be a potent weapon as long as it empowers the UK to override the type of corporate tax arrangements which are legal but abusive in reality. The government has been prominent in calling for action on tax dodging in poor countries. We now urge it to help those countries design similar rules, while beefing up the UK's own anti-tax haven rules.”
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