Osborne plans crackdown on tech groups with new anti-avoidance rules
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Technology companies “that go to extraordinary lengths” to cut their tax bills will be hit with new anti-avoidance rules, as George Osborne signalled plans to raise “hundreds of millions” in tax from the likes of Google and Microsoft.
Mr Osborne said he would use his Autumn Statement to stop large technology multinationals avoiding corporation tax. “This is a warning of an impending hit,” said one senior Conservative figure.
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“Some technology companies go to extraordinary lengths to pay little or not tax here,” Mr Osborne told the Conservatives’ annual party conference. “If you abuse our tax system, you abuse the trust of the British people,” he said.
His comments came as the European Commission prepared to unveil on Tuesday details of its case against Ireland over favourable tax treatment for Apple, which it says its illegal state aid.
Conservative strategists hoped the tax crackdown on multinationals – immediately dubbed “The Google tax” – would blunt Labour’s attempts to portray the Conservatives as backing big business over ordinary people.
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“Some technology companies go to extraordinary lengths to pay little or not tax here,” Mr Osborne told the Conservatives’ annual party conference. “If you abuse our tax system, you abuse the trust of the British people,” he said.
His comments came as the European Commission prepared to unveil on Tuesday details of its case against Ireland over favourable tax treatment for Apple, which it says its illegal state aid.
Conservative strategists hoped the tax crackdown on multinationals – immediately dubbed “The Google tax” – would blunt Labour’s attempts to portray the Conservatives as backing big business over ordinary people.
Mr Osborne’s speech also included a proposed two-year freeze on key benefits affecting 10m households – of which 5m are working households – intended to save £3.2bn.
The proposal was attacked by Labour as unfair, but there was speculation that David Cameron would use his speech on Wednesday to offer a tax cut for the same working families.
Separately Mr Cameron is expected to offer a guarantee of seven-day access to GPs by 2020.
Mr Osborne’s latest curb on tax avoidance represents a cooling of relations between Google and the government. The high point of the relationship came in March 2012, when Mr Osborne opened “Campus”, a work space for budding tech entrepreneurs in east London, which was built by Google for several million pounds.
There have also been close personal ties between Downing Street and Google: Rachel Whetstone, global head of communications at Google, once worked for the party and is married to the prime minister’s former close adviser Steve Hilton.
Many internet companies pay little tax in Britain because they put their main profit-generating activities in lower tax countries like Ireland and ascribe little value to their UK sales and marketing operations.
The tax authority in Britain cannot levy tax on profits that are generated from the sales booked offshore, unless the sales force based in the UK has the authority to close the deals.
An analysis by the Financial Times of seven US technology giants found they paid just £54m in UK corporate tax. Their UK turnover was just £1.7bn in 2012, even though their overall sales to British customers totalled $15bn.
The only revenue booked in Britain was the commission paid by the European head office for the sales and marketing services performed in the UK.
Many technology companies drive down their foreign tax rates still further – below 5 per cent in some cases – by holding key intellectual property in tax havens.
Many use a structure that allows royalty payments for the use of intellectual property to be sent to a company that is incorporated in Ireland but has its headquarters in a tax haven. Ireland is under intensifying pressure to abolish this structure which is known as a “double Irish”.
The clampdown by the Conservative-led coalition comes against the backdrop of progress made by the G20 economies and Paris-based OECD to redesign international rules, giving Mr Osborne the political cover to make his move.
Google, Apple, Twitter and Microsoft declined to comment. Facebook and Yahoo did not immediately respond to requests for comment. Amazon said in a statement that it paid “all applicable taxes in every jurisdiction where we operate” and highlighted the nearly 1,000 employees it had at its European headquarters in Luxembourg.
Executives at leading US technology conglomerates insisted they paid all tax owed and that they contributed to the UK economy by employing thousands of staff in this country.
