Under pressure to address the Paradise Papers’ revelations of tax avoidance, yesterday British chancellor Philip Hammond unveiled a measure aimed at tax avoidance by tech giants like Apple and Google.
Tech companies that route their profits through Ireland and other tax havens can end up paying almost no tax in the countries where their money is earned. To combat this practice, Hammond said the UK would start taxing royalty payments that are made to subsidiaries low-tax jurisdictions offshore. He estimates that would net the government about £200 million ($266 million) per year.
The measure’s strength depends on how you look at it. If you compare the new tax to how much tech giants pay right now, then a firm like Apple—which paid a paltry £12.9 million in UK corporate taxes in 2015—may have to fork out much more. However, it’s nothing close to the billions they should be paying. Economist Gabriel Zucman says the UK loses the equivalent of $15 billion per year in corporate tax avoidance, with the EU as a whole losing about a fifth of the corporate tax revenue it currently collects.
Admitting that “this does not solve the problem,” Hammond described the measure as “a signal of our determination” to make sure digital businesses pay fair amounts of tax. He insists that closing cross-border loopholes “can only be properly solved on an international basis” and that the UK is “leading the charge” at the G20 and OECD.
“I think it’s a very firm signal,” said Alex Henderson, a tax partner at PwC, an accounting firm. “Even though it’s a signal of intent, it’s one that carries a price tag of hundreds of millions of pounds. I think it is something people will take very seriously.”
But tax fairness campaigners are unimpressed. “This is a drop in the ocean… I don’t think [tech giants] will care very much,” said Alex Cobham, CEO of Tax Justice Network. He agreed it’s plausible that other countries might adopt similar measures if it were successful in the UK. Still, the amount projected to be raised is “so marginal compared to the size of the misalignment of tech companies’ profits… that I don’t think anyone is going to see this as a solution.”
Cobham argues that if Hammond were really determined to make a difference on global tax avoidance, he would use the powers the Treasury gained last year to force big companies to publish how much revenue they earn in each country and how much tax they pay there. It is currently optional.