British Government Introduces 'Google Tax' to Plug Loophole on Profits

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Tech giants such as Google, Apple and Amazon will no longer be able to avoid paying tax in the United Kingdom by diverting profits overseas, the British Chancellor has announced.

The so-called 'Google Tax' comes into effect April 1 and will see internationally-registered companies that trade in the U.K. with annual turnover of over £10 million ($14.7 million) subject to a 25 percent diverted profits tax.

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Firms that aid tax evasion will also face new penalties and criminal prosecutions, said Chancellor George Osborne in his pre-election budget speech.

The new legislation has been introduced to end the existing practice of large multinational companies paying little or zero corporation tax in the U.K. by basing operations in other European or international countries where corporation tax rates are lower. For example, Both Amazon's European headquarters and iTunes S.a.r.l, the Apple subsidiary which runs European iTunes online services, are located in Luxembourg.

Google, which has its European headquarters in Dublin, Ireland, paid £20.4 million ($30 million) in corporation tax in 2013 from U.K. revenues of £3.6 billion ($5.6 billion), according to accounts filed at Companies House.

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Outside of the tech sector, Starbucks has drawn particular ire from U.K. tax payers for its long-held avoidance of tax. In 2013, it was revealed that company had paid only £8.6 million ($12.7 million) in corporation tax since it began trading in the U.K. in 1998, although the company has since switched its European base from the Netherlands to London.

Starbucks, Amazon and Apple are all currently being investigated by the European Commission over their cross-border tax arrangements.

"Let the message go out: this country's tolerance for those who will not pay their fair share of taxes has come to an end," announced Osborne, who predicted that the new measures would raise £3.1 billion ($7.5 billion) for the British economy over the next five years. 

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Under the new laws, companies will be required to inform HM Revenue & Customs (HMRC) if they are liable to pay diverted profits tax. HMRC will then access the accounts to determine the amount of tax due on profits moved overseas.