US Business Attacks Proposed UK Diverted Profits Tax
The United States Council for International Business (USCIB) has warned that the United Kingdom’s proposal to impose a new tax on so-called “diverted profits” (DPT) would, if implemented, have a major impact on US-based multinational companies.
The rules, contained in UK Government’s recent Autumn Statement, propose a 25 percent DPT from April 2015 to tackle “artificial” profit shifting arrangements that have the effect of reducing profits taxable in the UK. The USCIB complained that the proposed rules would, amongst other things, impose a new tax on non-resident companies selling goods and services to UK customers by penalizing them for avoiding a UK permanent establishment (PE).
“The UK’s proposal jumps the gun on ongoing discussions concerning the scope of taxation rights on non-resident companies,” said USCIB Vice President and International Tax Counsel Carol Doran Klein. “USCIB believes that the UK’s unilateral assertion of the right to tax so-called diverted profits is an undisguised attempt to bring more tax revenue into the UK, whether consistent with international norms or not.”
In addition, Klein noted that the UK move could undercut discussions in the Organization for Economic Cooperation and Development (OECD) to develop rules on base erosion and profit shifting (BEPS).
“The goal of the multilateral discussions on BEPS is to reach consensus solutions to identified international tax issues,” she stated. “Unilateral assertions of taxing jurisdiction by any country increase the risk that other countries will simply abandon the process and act unilaterally.”
As the proposal would override existing tax treaties, she warned the measure would “increase the likelihood of double taxation on companies, which will have a negative effect on cross-border trade and investment.”
“It is intended to apply when there is no PE under the relevant rules,” Klein said. “Companies should be free to structure their affairs taking into account the rules as they are. If they do not have a PE under those rules, then they should not be subject to tax on their business profits. Countries should not be able to disregard agreed-upon rules simply because they do not like the outcome.”
