The Chancellor appeared to jump the gun on international tax avoidance ahead of the co-ordinated moves by the G20 on tax avoidance.
The new diverted profits tax appears to be aimed precisely at the Google, Starbucks and Amazon structures which have been used so successfully to reduce their corporate tax bills.
The measures which the Chancellor outlined are likely to be found in the final conclusions of the OECD BEPS (base erosion and profit shifting) report. It never does a Chancellor any harm to be seen as cracking down on aggressive tax avoidance, particularly by foreigners and one can expect some adjustments to the arrangements as the provisions are subjected to scrutiny. Both in the UK and internationally.
The new tax could be used to curb a number of traditional tax planning devices. In particular,
1. The fragmenting of company activities to avoid creating a permanent establishment
2. intellectual property payments to a lower tax jurisdiction
3. finance payments to a low tax jurisdiction
A feature of the diverted profits tax is its emphasis on testing whether there is a mismatch between deductions claimed in the UK and taxable income in another territory. It also gives HMRC greater power in dealing with the transfer pricing issues and the ability to issue assessments much earlier.
The differential rate of 25% as opposed to UK CT at 20%, is designed to change behaviour so that companies established P/E’s and pay corporation tax rather than be caught by the diverted profits tax.
However, one can see that the scope of this diverted profits tax means that it is likely to remain in the armoury of the Treasury for some time to come.
Primondell are happy to run seminars in the areas of international taxation, including transfer pricing, the diverted profits tax, permanent establishments and double tax relief.
For further details email jpmind20@gmail.com
