Targeting tech giants may raise £200m a year

MULTINATIONAL firms, including tech giants such as Google, are being targeted in a fresh crackdown on tax avoidance.

The Treasury has placed companies that artificially reduce their tax bills in the UK by paying royalty payments to an offshore arm firmly in its sights.

It is expected to raise around £200million a year – the amount Google’s UK arm alone generates in 12 days.

Many big international businesses have been slammed for shifting billions of pounds abroad using these payments, which in turn reduces their tax liability in the UK.

A so-called ‘Google tax’ has already been levied on big tech companies that attempt to limit their taxable profits by making royalty payments from a UK subsidiary to one in a tax haven.

But in the Budget yesterday, the Chancellor announced a further tax that will apply to royalties sent to tax havens by foreign firms on UK sales. However, last night tax campaigners criticised the move for failing to go far enough to crack down on tax avoidance by digital giants such as Google, eBay and Amazon.

Alex Cobham, from the Tax Justice Network, said: ‘They are looking at something which if successful could bring in £200million. The scale of the problem is in the many billions each year in terms of revenue losses, so even if successful it is not going to have a major impact. Secondly, it seems quite likely that it will provoke an international legal battle.’

Multinational firms have been slammed for sending profits in the form of ‘royalty payments’ to other parts of the company based in lowtax jurisdictions.

The tax ruse works by the UK arm of a company paying a bill to another overseas arm of the same firm. The royalty payment, which is often charged for use of the company intellectual property, such as logos and branding, becomes a cost in the company accounts. As such it can be deducted from any profit the firm has made.

As companies only pay corporation tax of 19 per cent on profits, the lower the amount they make it appear, the lower their tax bill.

Google, eBay and Amazon did not comment.