Google tax

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'Google tax' is a popular term used to refer to anti-avoidance provisions that have been passed in several jurisdictions dealing with profits or royalties that have been diverted to other jurisdictions with lower or nil rates.

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Diverted profits tax

The UK and Australia measures took effect in advance of the Base erosion and profit shifting measures being considered at recent G20 summits.

United Kingdom

Effective for accounting periods beginning on or after 1 April 2015, the Finance Act 2015 [1] imposes a levy on company profitsexcluding those of small and medium-sized enterprises that are routed via "contrived arrangements" to tax havens. [2] [3] The arrangements can concern either those that involve entities or transactions lacking economic substance, [4] or efforts by a non-UK company to avoid a UK taxable presence. [5] Companies that determine that they are subject to the tax have a statutory duty to notify Her Majesty's Revenue and Customs of that fact within three months after the end of the accounting period in question. [6]

The UK tax is set at 25% of taxable diverted profits (or 55% with respect to ring fence profits), and will raise about £350m annually by 2017–18, according to UK Treasury estimates. [2]

The Confederation of British Industry (CBI) described the effort to impose taxation on diverted profits as "a real concern for global business". [7] Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants (ACCA), said, "It's a bit like reporting yourself to the police and then having to defend yourself." [8]

Amazon announced in May 2015 that it will start paying tax in the UK on British retail sales rather than booking sales through Luxembourg, this will mean the group will not have to pay the diverted profit tax. [9]

Australia

The term has similarly been applied to the Tax Laws Amendment (Combating Multinational Tax Avoidance) Act 2015 [10] introduced in the May 2015 budget, which received Royal assent in December 2015. [11] The provisions came into effect on 1 January 2016 "in connection with a scheme, whether or not the scheme was entered into, or was commenced to be carried out, before that day. " [12]

The Australian measures focus on arrangements that attempt to avoid establishing a permanent establishment presence in Australia. While they were originally intended to target a group of thirty large multinational corporations, other taxpayers will still need to document whether they would be subject to the provisions, as the Australian Taxation Office would have the power to assess an administrative penalty of 100% of any calculated shortfall of tax owed, together with base tax and interest. [13]

In the 2016 Australian federal budget, the government announced the introduction of a diverted profits tax (DPT) from 1 July 2017. The Diverted Profits Tax Act 2017 imposes a 40 percent tax on avoidance schemes entered into by significant global entities (SGEs), which are defined as global parent entities with an annual global income of A$1 billion or more. [14]

Royalty charges

The term has also been used to refer to a tax in Spain, introduced in 2014, that imposes a royalty charge on Google when its news site, Google News, uses material belonging to a Spanish publisher. [15] Google's response was to cease collating such articles on Google News. [16]

Related Research Articles

Corporate haven, corporate tax haven, or multinational tax haven is used to describe a jurisdiction that multinational corporations find attractive for establishing subsidiaries or incorporation of regional or main company headquarters, mostly due to favourable tax regimes, and/or favourable secrecy laws, and/or favourable regulatory regimes.

Tax avoidance is the legal usage of the tax regime in a single territory to one's own advantage to reduce the amount of tax that is payable by means that are within the law. A tax shelter is one type of tax avoidance, and tax havens are jurisdictions that facilitate reduced taxes. Tax avoidance should not be confused with tax evasion, which is illegal.

Double taxation is the levying of tax by two or more jurisdictions on the same income, asset, or financial transaction.

<span class="mw-page-title-main">Corporation tax in the Republic of Ireland</span> Irish corporate tax regime

Ireland's Corporate Tax System is a central component of Ireland's economy. In 2016–17, foreign firms paid 80% of Irish corporate tax, employed 25% of the Irish labour force, and created 57% of Irish OECD non-farm value-add. As of 2017, 25 of the top 50 Irish firms were U.S.–controlled businesses, representing 70% of the revenue of the top 50 Irish firms. By 2018, Ireland had received the most U.S. § Corporate tax inversions in history, and Apple was over one–fifth of Irish GDP. Academics rank Ireland as the largest tax haven; larger than the Caribbean tax haven system.

International taxation is the study or determination of tax on a person or business subject to the tax laws of different countries, or the international aspects of an individual country's tax laws as the case may be. Governments usually limit the scope of their income taxation in some manner territorially or provide for offsets to taxation relating to extraterritorial income. The manner of limitation generally takes the form of a territorial, residence-based, or exclusionary system. Some governments have attempted to mitigate the differing limitations of each of these three broad systems by enacting a hybrid system with characteristics of two or more.

<span class="mw-page-title-main">Finance Act 2004</span> United Kingdom legislation

The Finance Act 2004 is an Act of the Parliament of the United Kingdom. It prescribes changes to Excise Duties, Value Added Tax, Income Tax, Corporation Tax, and Capital Gains Tax. It enacts the 2004 Budget speech made by Chancellor of the Exchequer Gordon Brown to the Parliament of the United Kingdom.

<span class="mw-page-title-main">Taxation in Australia</span> Overview of taxation in Australia

Income taxes are the most significant form of taxation in Australia, and collected by the federal government through the Australian Taxation Office. Australian GST revenue is collected by the Federal government, and then paid to the states under a distribution formula determined by the Commonwealth Grants Commission.

Internet tax is a tax on Internet-based services. A number of jurisdictions have introduced an Internet tax and others are considering doing so mainly as a result of successful tax avoidance by multinational corporations that operate within the digital economy. Internet taxes prominently target companies including Facebook, Google, Amazon, Airbnb, Uber.

Taxes in India are levied by the Central Government and the State Governments by virtue of powers conferred to them from the Constitution of India. Some minor taxes are also levied by the local authorities such as the Municipality.

Budget Note 66 (BN66) is the mechanism by which the UK government introduced clause 55 of the Finance Bill 2008, which would later become Section 58 of the Finance Act 2008. This specifically targeted tax planning and tax avoidance schemes that made use of offshore trusts and double taxation treaties to reduce the tax paid by the scheme's users which had previously been legal. This arrangement was originally used by property developers but was then heavily marketed to the freelance community after the introduction of intermediaries legislation known as IR35, because it appeared to offer more certainty concerning tax liabilities than would be the case if running a limited company.

<span class="mw-page-title-main">Double Irish arrangement</span> Irish corporate tax avoidance tool

The Double Irish arrangement was a base erosion and profit shifting (BEPS) corporate tax avoidance tool used mostly by United States multinationals since the late 1980s to avoid corporate taxation on non-U.S. profits. It was the largest tax avoidance tool in history and by 2010 was shielding US$100 billion annually in US multinational foreign profits from taxation, and was the main tool by which US multinationals built up untaxed offshore reserves of US$1 trillion from 2004 to 2018. Traditionally, it was also used with the Dutch Sandwich BEPS tool; however, 2010 changes to tax laws in Ireland dispensed with this requirement.

<span class="mw-page-title-main">Base erosion and profit shifting</span> Multinational tax avoidance tools

Base erosion and profit shifting (BEPS) refers to corporate tax planning strategies used by multinationals to "shift" profits from higher-tax jurisdictions to lower-tax jurisdictions or no-tax locations where there is little or no economic activity, thus "eroding" the "tax-base" of the higher-tax jurisdictions using deductible payments such as interest or royalties. For the government, the tax base is a company's income or profit. Tax is levied as a percentage on this income/profit. When that income / profit is transferred to another country or tax haven, the tax base is eroded and the company does not pay taxes to the country that is generating the income. As a result, tax revenues are reduced and the government is detained. The Organization for Economic Co-operation and Development (OECD) define BEPS strategies as "exploiting gaps and mismatches in tax rules". While some of the tactics are illegal, the majority are not. Because businesses that operate across borders can utilize BEPS to obtain a competitive edge over domestic businesses, it affects the righteousness and integrity of tax systems. Furthermore, it lessens deliberate compliance, when taxpayers notice multinationals legally avoiding corporate income taxes. Because developing nations rely more heavily on corporate income tax, they are disproportionately affected by BEPS.

<span class="mw-page-title-main">Dutch Sandwich</span> Dutch withholding tax avoidance tool

Dutch Sandwich is a base erosion and profit shifting (BEPS) corporate tax tool, used mostly by U.S. multinationals to avoid incurring EU withholding taxes on untaxed profits as they were being moved to non-EU tax havens. These untaxed profits could have originated from within the EU, or from outside the EU, but in most cases were routed to major EU corporate-focused tax havens, such as Ireland and Luxembourg, by the use of other BEPS tools. The Dutch Sandwich was often used with Irish BEPS tools such as the Double Irish, the Single Malt and the Capital Allowances for Intangible Assets ("CAIA") tools. In 2010, Ireland changed its tax-code to enable Irish BEPS tools to avoid such withholding taxes without needing a Dutch Sandwich.

<span class="mw-page-title-main">Bermuda Black Hole</span> Corporate tax avoidance strategy

Bermuda black hole refers to base erosion and profit shifting (BEPS) tax avoidance schemes in which untaxed global profits end up in Bermuda, which is considered a tax haven. The term was most associated with US technology multinationals such as Apple and Google who used Bermuda as the "terminus" for their Double Irish arrangement tax structure.

The OECD G20 Base Erosion and Profit Shifting Project is an OECD/G20 project to set up an international framework to combat tax avoidance by multinational enterprises ("MNEs") using base erosion and profit shifting tools. The project, led by the OECD's Committee on Fiscal Affairs, began in 2013 with OECD and G20 countries, in a context of financial crisis and tax affairs. Currently, after the BEPS report has been delivered in 2015, the project is now in its implementation phase, 116 countries are involved including a majority of developing countries. During two years, the package was developed by participating members on an equal footing, as well as widespread consultations with jurisdictions and stakeholders, including business, academics and civil society. And since 2016, the OECD/G20 Inclusive Framework on BEPS provides for its 140 members a platform to work on an equal footing to tackle BEPS, including through peer review of the BEPS minimum standards, and monitoring of implementation of the BEPS package as a whole.

<span class="mw-page-title-main">Conduit and sink OFCs</span> Classification of tax havens

Conduit OFC and sink OFC is an empirical quantitative method of classifying corporate tax havens, offshore financial centres (OFCs) and tax havens.

<span class="mw-page-title-main">Ireland v Commission</span> Tax dispute involving Apple, Ireland, and the EU

On 29 August 2016, after a two-year investigation, Margrethe Vestager of the European Commission announced: "Ireland granted illegal tax benefits to Apple". The Commission ordered Apple to pay €13 billion, plus interest, in unpaid Irish taxes from 2004–14 to the Irish state. It was the largest corporate tax "fine" in history. On 7 September 2016, the Irish State secured a majority in Dáil Éireann to reject payment of the back-taxes, which including penalties could reach €20 billion, or 10% of 2014 Irish GDP. In November 2016, the Irish government formally appealed the ruling, claiming there was no violation of Irish tax law, and that the commission's action was "an intrusion into Irish sovereignty", as national tax policy is excluded from EU treaties. In November 2016, Apple CEO Tim Cook, announced Apple would appeal, and in September 2018, Apple lodged €13 billion to an escrow account, pending appeal. In July 2020, the European General Court struck down EU tax decision as illegal, ruling in favor of Apple.

<span class="mw-page-title-main">Feargal O'Rourke</span> Managing Partner of PwC, Dublin

Feargal “Sake” O'Rourke is an Irish accountant and corporate tax expert, who is the managing partner of PwC in Ireland. He is considered the architect of the Double Irish tax scheme used by U.S. firms such as Apple, Google and Facebook in Ireland, and a leader in the development of corporate tax planning tools, and tax legislation, for U.S. multinationals in Ireland.

<span class="mw-page-title-main">Ireland as a tax haven</span> Allegation that Ireland facilitates tax base erosion and profit shifting

Ireland has been labelled as a tax haven or corporate tax haven in multiple financial reports, an allegation which the state has rejected in response. Ireland is on all academic "tax haven lists", including the § Leaders in tax haven research, and tax NGOs. Ireland does not meet the 1998 OECD definition of a tax haven, but no OECD member, including Switzerland, ever met this definition; only Trinidad & Tobago met it in 2017. Similarly, no EU–28 country is amongst the 64 listed in the 2017 EU tax haven blacklist and greylist. In September 2016, Brazil became the first G20 country to "blacklist" Ireland as a tax haven.

Repatriation tax avoidance is the legal use of a tax regime within a country in order to repatriate income earned by foreign subsidiaries to a parent corporation while avoiding taxes ordinarily owed to the parent's country on the repatriation of foreign income. Prior to the passage of the Tax Cut and Jobs Act of 2017, multinational firms based in the United States owed the U.S. government taxes on worldwide income. Companies avoided taxes on the repatriation of income earned abroad through a variety of strategies involving the use of mergers and acquisitions. Three main types of strategies emerged and were given names—the "Killer B", "Deadly D", and "Outbound F"—each of which took advantage of a different area of the Internal Revenue Code to conduct tax-exempt corporate reorganizations.

References

  1. "Finance Act 2015", legislation.gov.uk , The National Archives, 2015 c. 11
  2. 1 2 Peston, Robert (10 December 2014). "Who wins from Google tax?". BBC News . Retrieved 11 December 2014.
  3. Williams, Christopher (10 December 2014). "'Google Tax' targets 'double Irish' tax avoidance". The Daily Telegraph . Retrieved 11 December 2014.
  4. FA2015, ss. 8081
  5. FA2015, ss. 8687
  6. FA2015, s. 92
  7. Houlder, Vanessa (10 December 2014). "Business leaders attack UK 'Google tax'". The Financial Times . Retrieved 11 December 2014.
  8. Hall, Kat (10 December 2014). "Firms will have to report OWN diverted profits under 'Google Tax' law". The Register . Retrieved 11 December 2014.
  9. Bowers, Simon (23 May 2015). "Amazon to begin paying corporation tax on UK retail sales". The Guardian . Retrieved 23 May 2015.
  10. Tax Laws Amendment (Combating Multinational Tax Avoidance) Act 2015, Act No. 170 of 2015 (Cth)
  11. Crabb, Annabel (12 May 2015). "Budget 2015: Hockey gets a visit from the Fairness Fairy". ABC News .
  12. TLA(CMTA)A2015, Schedule 2, Item 7
  13. "Australia introduces multinational anti-avoidance legislation into parliament" (PDF). Pricewaterhouse Coopers. September 21, 2015.
  14. "Diverted profits tax". Australian Taxation Office. Retrieved 27 August 2018.
  15. Bershidsky, Leonid (11 December 2014). "Why 'Google Tax' Became a Catchphrase". bloomberg.com. Retrieved 11 December 2014.
  16. Rushe, Dominic (11 December 2014). "Google News Spain to close in response to story links 'tax'". The Guardian . Retrieved 11 December 2014.