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'Google tax' plans - unintended consequences for UK competitiveness

Law Society | Law Society

2 min read Partner content

The Law Society has warned that HMRC plans for a new 'Diverted Profits Tax' - often dubbed the 'Google tax' - could go beyond its intended targets and affect the UK's global competitiveness.

Responding to HMRC's consultation, Law Society tax law committee chair Gary Richards said:

"The Law Society understands the intended targets of Diverted Profits Tax are large multinational businesses seeking to use contrived arrangements to divert profits away from the UK tax net. But as the UK seeks to have the most attractive corporate tax regime in the G20, the legislation HMRC has drafted must be tightened up.

"The current draft legislation leaves too many uncertainties. It needs to be narrowly framed so that it only affects its intended targets, avoiding a negative impact on the UK's competitiveness and risking successful challenge under the UK's treaty obligations."

Unintended impacts of the legislation as currently drafted include:

- UK-headquartered international businesses that maintain staff and functions in non-UK jurisdictions for commercial reasons could nevertheless be perceived to be diverting profits from the UK to avoid tax, whenever there is non-UK activity.

- The UK losing investment to other jurisdictions. Some investors will consider investing in other jurisdictions, or using non-UK services because of uncertainties, which would have negative consequences for various sectors in the UK, including investment management.

- Unnecessary administrative burdens and red tape. The way in which the reporting requirements are drafted - much wider than the scope of the tax itself - is likely to impose costs on businesses and HMRC in generating, processing and rejecting 'false positive' returns of businesses that are not in practice liable to the tax.

In addition to tightening up the legislation, the Law Society recommends considering delaying or at least staging its introduction. That way it could take into account the OECD's Base Erosion and Profit Sharing (BEPS) project, which is due to report by the end of 2015. If the government proceeds now, it is likely that the legislation will need to change once the OECD's project is finished.

Read the most recent article written by Law Society - Law Society response to government announcement on court fee increases

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