OUT IN THE OPEN

New transparency rules aim to close a giant UK tax loophole for Google and other big firms

Obsession
Borders
Obsession
Borders

The United Kingdom’s tax authority will soon start requiring big companies to start publishing their tax strategies online for public scrutiny. The new rules would affect big international firms with local entities, like Google, which has been in the spotlight for generating billions in revenue from UK customers but paying just tens of millions in taxes.

The rules, called the “large businesses transparency strategy,” say that companies with revenue of more than £200 million, or those carrying a balance sheet of more than £2 billion, must post their tax strategies on the internet. The strategy must inform the public about the company’s attitude toward UK tax planning, how it oversees its risk management in relation to UK taxes, and how it engages with the UK tax authority, according to official guidance (pdf). Around 2,000 companies will come under the new rules, which will likely kick in around mid-year.

This is all very relevant for the big tech firms who operate in Europe. Google, Apple, and Amazon meet the revenue thresholds, and we’ve reached out to all three for a comment. Neither eBay nor Facebook would be affected, based on revenue figures from the companies’ latest accounts filed in the UK.

The rules are light on the specific language companies must use in describing their plans, leaving them plenty of wiggle room to couch their tax strategies in vague terms. But that doesn’t mean the rules will have no effect at all. Heather Self, a partner in the corporate tax practice at Pinsent Masons in the UK, says it’s a “soft” approach that’s designed to coax companies to voluntarily be more transparent about their tax practices. The UK tax authority, Her Majesty’s Revenue and Custom (HMRC), is “hoping that by making this more formal requirement to disclose a strategy, it will get more attention at a broad level, and some directors might say, ‘We don’t want to be this aggressive about our tax policy.'”

Google, for example, has managed to keep a lid on its tax bill by routing revenue through Ireland, where corporate tax rates are among the lowest in Europe. The convenient arrangement has prompted enough public outcry in the UK and scrutiny from the authorities that in January, Google was forced to pay back-taxes of £130 million for the last 10 years. Even this was called “derisory,” and Google’s UK boss, Matt Brittin, was questioned in Parliament. “Out there, our constituents are very angry; they live in a different world clearly to the world you live in,” the committee chair told him.

The new transparency rules are of a piece with the back-taxes deal and with a 2015 law, known as the “Google tax,” that levies higher taxes on profits shifted out of the country.

Some firms are embracing the spirit of the transparency rules by publishing their tax strategies before the filing deadline, which is likely to be set for mid-2017. (The precise deadline depends on when the rules are given royal assent and passed into law, which observers expect will happen this July.) Vodafone, for example, is already on its third annual public tax report.

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