October 4, 2016
Companies looking to break or even bend the domestic tax law in the UK are facing even more challenges thanks to the unveiling of a new tax aimed at 100 multinational organisations.
According to a report in the FT, a series of major global companies have emerged as targets of this new tax specifically aimed at large firms that “go to extraordinary lengths” to avoid paying money to HMRC.
HMRC has reported that the scope of the “diverted profits” or “Google tax” which targets contrived attempts to shift profits to lower tax countries – a practice that has been going on for a considerable amount of time – has taken many large companies by surprise and is likely to fuel ongoing arguments. The changes are part of a worldwide crackdown on “base erosion and profit shifting” and were met with considerable resistance from a number of US tech firms when they were introduced into this country last year. In fact, Facebook has gone as far as adapting its company structure to sidestep some of the potential charges it would face.
Some organisations have suggested that the diverted profits tax has been actioned more widely than first expected, however HMRC disagreed, stating that this was solely a reaction to the extra funds it had been granted by the government to check cross border transactions. Its initial projections have identified 100 cases where major organisations have shifted profits to other countries, although this is likely to change when further investigations are carried out. Glyn Fullelove, chair of the technical committee at the Chartered Institute of Taxation, believes the impact of the tax will likely grow. “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.”
While the changes in regulations may seem sweeping, the drastic clampdown on firms attempting the break the law has already had a positive effect. Jim Harra, director-general of business tax at HMRC stated, “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.”
It appears that many major organisations are realising that there really is nowhere to hide in the fight against tax evasion. And if companies like Google are being chased down, what chance do individual contractors have? If you’re unsure of your tax status wherever you are working then get in touch with our specialist team to stay on the right side of the law.
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