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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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'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.
The UK and Australia measures took effect in advance of the Base erosion and profit shifting measures being considered at recent G20 summits.
Effective for accounting periods beginning on or after 1 April 2015, the Finance Act 2015 [1] imposes a levy on company profits—excluding 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 6 percentage points above the headline corporation tax rate, or 31% of taxable diverted profits for a company with annual profits over £250,000 [7] (55% with respect to ring fence profits), and was in 2014 forecast by UK Treasury to Raise £350m annually by 2017–18. [2]
The Confederation of British Industry (CBI) described the effort to impose taxation on diverted profits as "a real concern for global business". [8] 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." [9]
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. [10]
The term has similarly been applied to the Tax Laws Amendment (Combating Multinational Tax Avoidance) Act 2015 [11] introduced in the May 2015 budget, which received Royal assent in December 2015. [12] 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. " [13]
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. [14]
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. [15]
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. [16] Google's response was to cease collating such articles on Google News. [17]
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. Both tax evasion and tax avoidance can be viewed as forms of tax noncompliance, as they describe a range of activities that intend to subvert a state's tax system.
Double taxation is the levying of tax by two or more jurisdictions on the same income, asset, or financial transaction.
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.
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.
Tax consolidation, or combined reporting, is a regime adopted in the tax or revenue legislation of a number of countries which treats a group of wholly owned or majority-owned companies and other entities as a single entity for tax purposes. This generally means that the head entity of the group is responsible for all or most of the group's tax obligations. Consolidation is usually an all-or-nothing event: once the decision to consolidate has been made, companies are irrevocably bound. Only by having less than a 100% interest in a subsidiary can that subsidiary be left out of the consolidation.
Income taxes are the most significant form of taxation in Australia, and collected by the federal government through the Australian Taxation Office (ATO). 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.
Digital goods are software programs, music, videos or other electronic files that users download exclusively from the Internet. Some digital goods are free, others are available for a fee. The taxation of digital goods and/or services, sometimes referred to as digital tax and/or a digital services tax, is gaining popularity across the globe.
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.
The Double Irish arrangement was a base erosion and profit shifting (BEPS) corporate tax avoidance tool used mainly 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. By 2010, it 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.
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 a 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 country is disadvantaged. The Organisation 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.
Dutch Sandwich is a base erosion and profit shifting (BEPS) corporate tax tool, used mostly by U.S. multinationals to avoid incurring European Union 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.
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.
Apple's EU tax dispute refers to an investigation by the European Commission into tax arrangements between Apple and Ireland, which allowed the company to pay close to zero corporate tax over 10 years.
Feargal O'Rourke is an Irish accountant and corporate tax expert, who was 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.
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.