Credit: altogetherfool/Flickr

American companies are worried about George Osborne's 'Google Tax'

The chancellor's efforts to tackle aggressive tax avoidance have irked some.

by Jack Torrance
Last Updated: 17 Aug 2015

Many agree that aggressive tax avoidance needs to be reduced but George Osborne's so-called 'Google Tax' on diverted profits was always going to get some peoples' backs up. Portrayed as an election year move designed to show the Conservatives aren't afraid to stand up to rogue businesses, it seems the fiendishly complicated measure hasn't gone down well with some American companies.

The tax, which came into force in April, applies a 25% charge on profits that HMRC deems to have been shifted abroad. It is designed to hit two types of business: those registered in the UK that use 'contrived structures' to avoid tax, and those listed elsewhere that avoid creating a UK base company but carry out substantial amonts of trade there. The Treasury says it hopes to raise £1.4bn over the next five years.

According to the FT, 11 US-listed businesses have mentioned the impact of the tax in investor communications, including the luxury accessories brand Michael Kors and Steiner Leisure, which owns the Elemis spas and beauty products company. They aren't huge names, but it certainly suggests that some multinationals are beginning to take notice. Some will suggest the worries show the tax is doing precisely what it is meant to, but others claim the tax will make the UK a less attractive place to do business.

It's not surprising the measure has been controversial. Defining what is and isn't tax avoidance is extremely difficult and the new law grants HMRC the power to demand money first, ask questions later, making planning to take the hit extremely difficult. It also puts the UK unilaterally ahead of the OECD's coordinated efforts to tackle 'base erosion and profit shifting' (Geography GCSE anybody?) which might be a dangerous strategic move. 

After his party scraped home to a majority in the election, Osborne might be regretting having introduced a complicated and controversial measure that will take a lot of effort to administer. But his decision to do so at least demonstrates some of the forward thinking that will be needed in order to make sure companies pay their fair share.

Find this article useful?

Get more great articles like this in your inbox every lunchtime