UK Introduces "Google Tax" Aimed at Economic Activity Shifted Overseas

By Lisa Fleisher, The Wall Street Journal

04 December 14

he U.K. government Wednesday took aim at tech companies and other international firms, proposing a 25% tax on profits on “economic activity” that is shifted overseas.

Treasury chief George Osborne said in his autumn budget statement to Parliament that he wanted to make sure “big multinational businesses pay their fair share.”

The proposal makes good on Mr. Osborne’s warning in September that he was going to crack down on companies – particularly tech companies – that use complex structures to lower their U.K. tax bills.

“Some of the largest companies in the world, including those in the tech sector, use elaborate structures to avoid paying taxes,” he said. “That’s not fair to other British firms. It’s not fair to British people either. Today we’re putting a stop to it. My message is consistent and clear: low taxes, but low taxes that will be paid.”

The tax, dubbed a “Google tax” by the British press, is expected to raise more than £1 billion ($1.56 billion) over five years, Mr. Osborne said.

It’s still unclear exactly what will constitute taxable activity in the U.K. and how it might change the tax bill of companies like Google and Facebook . Representatives from several tech companies weren’t immediately available to comment.

Google and other companies have been targeted by France and other European governments for not paying enough taxes. The issue is complicated by the companies’ setup: They can have sales representatives in one country selling online services, like ads, that appear in others, while the company’s residence for taxation purposes might be elsewhere still.