Tech Industry

UK slaps tax dodgers with 25 percent 'Google tax'

The UK has announced a new 25 percent tax for multinational companies that dodge taxation in the region, with big tech companies called out as major culprits.

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Britain's chief finance minister has used his annual prebudget statement to announce a new 25 percent tax on multinational companies that dodge taxation in the UK, a measure that has been dubbed locally as the "Google Tax."

Chancellor of the Exchequer George Osborne made the announcement in his annual Autumn Statement to parliament as part of a suite of changes including additional funding for health care, infrastructure and scientific research.

The conservative government, led by Prime Minister David Cameron, says it is "clamping down on tax avoidance by multinational companies" with the new "diverted profits tax."

According to a statement from the Treasury office, "if a company conducts a lot of activity in the UK -- sales, for example -- but can avoid paying corporation tax by moving profits generated in the UK to other countries through the manipulation of the international tax rules, the UK will now be able to tax those profits at a rate of 25 percent."

In announcing the measures, Chancellor Osborne said the government was focused on those "who have paid too little."

"Some of the largest companies in the world, including those in the tech sector, use elaborate structures to avoid paying taxes," he said. "That's not fair to other British firms. It's not fair to the British people either. Today we're putting a stop to it."

The complicated tax avoidance schemes of multinational companies, particularly those in the tech space, have come under greater scrutiny in recent years.

In October, Ireland announced it would be doing away with the so-called "Double Irish" tax loophole that has allowed US tech companies including Apple, Facebook and Google to protect billions of dollars from taxation. The loophole will be closed to new entrants as of 2015 and completely phased out by 2020.

Australia has also joined in on the multinational crackdown, with a new parliamentary inquiry into tax avoidance recently announced by the federal government.

An investigation by the Australian Financial Review found that though Australians have bought AU$27 billion worth of Apple products since 2002 (until March this year), "the company has paid only AU$193 million to the Australian Tax Office...just 0.7 percent of its turnover."

Sydney University senior lecturer on taxation Antony Ting puts the figure that Apple has sheltered from taxation worldwide (between 2009 and 2012) at $44 billion.

Britain's new 25 percent diverted profits tax will apply to both UK and foreign companies from April 2015 and is expected to raise £1 billion over 5 years.