Multinationals will face a penalty tax if they are found to have artificially moved profits out of the United Kingdom to lower tax jurisdictions, such as the Republic, the British chancellor of the exchequer, George Osborne has said.
Delivering his autumn statement to the house of commons, Mr Osborne, who is bidding to bring in £5 billion-a-year more from curbing tax avoidance, said he was determined to ensure that multi-nationals “pay their fair share”.
“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. My message is consistent and clear. Low taxes; but taxes that will be paid,” he declared.
Under the plan, companies will face a 25 per cent diverted profits tax on profits generated in the UK if HM Revenue and Customs later decides that profits have been “artificially shifted out of the country”.
Questioned later about the types of accountancy practices that would fall foul of the new rules, a close aide of the chancellor referred directly to “the double Irish” system – where profits are moved from higher-tax regimes to Dublin.
Corporation tax in the UK has fallen from 28 per cent in 2010 to 21 per cent today, and will fall further to 20 per cent in 2015-16. The decision to fix the penalty rate on shifted profits at 25 per cent is deliberate, the treasury said later: “Pay the rate you should, or pay higher,” said a source.
Tax planning
The new tax to combat “aggressive” tax planning will come into force from April 1st, 2015. Detailed tables published by the treasury show that it believes the change will raise £25 in its first year, but it will have risen to £360 million by its third year.
Meanwhile, the British chancellor is to copy moves that were first introduced, but later abandoned in Ireland in 2013 to stop banks using losses built up during the financial crisis to write off against future profits.
“Under the rules we inherited banks can offset all their losses from the financial crisis against tax on profits for years to come. Some banks wouldn’t be paying tax for 15 or 20 years. That’s totally unacceptable,” Mr Osborne said.
Banks were backed by the public and “should now support the public”, he said, saying that write-offs will be limited to 50 per cent of losses in all bar a few circumstances which will see banks paying £4 billion more tax over the next five years.
Corporation tax receipts from banks operating in Britain have fallen from £7.3 billion in 2006/7 to just £1.6bn last year: “It is unsustainable that some banks will not be making payments for another 15 to 20 years,” a Treasury paper declared.
The banks built up losses “as a result of their performance during the financial crisis” and later fines for misconduct.
“The government considers it unreasonable that these losses are now being used to eliminate tax on current profits,” it went on.
Stamp duty
Meanwhile, the chancellor has changed house stamp-duty rules. From now on, no tax will be paid on the first £125,000, 2 per cent will be paid between that and £250,000, 5 per cent between £250,000 and £925,000, 10 per cent up to £1.5 million and 12 per cent on everything over that.
The change, which will come into force immediately, should cut bills for 98 per cent of home-buyers, the treasury promised, though there is a danger that lower tax bills could fuel further price rises.
A home-buyer purchasing an average family in the UK, which now costs £275,000, according to treasury figures, would save £4,500. The average London buyer will save £4,900. A £2 million house, however, will cost £18,750 in taxes.
