29 January 2019

HMRC’s latest attack on Google

HMRC has announced a major new compliance offensive for the ‘Google tax’

Announced shortly before the general election in 2015, the Diverted Profits Tax (DPT) which was a thinly disguised attempt to demonstrate to the public that the Government was getting tough on multinationals, who appeared to be paying less than their fair share of tax.  The ‘Google tax’, as the media dubbed it, was heralded as the UK’s answer to international tax avoidance and unacceptable transfer pricing by large multinational groups. HMRC published examples specifically concerning captive insurance companies and made it clear that it considered that some structures were likely to fall within the rules.

On 10 January 2019, HMRC announced a major new compliance offensive for the ‘Google tax’ – that will increase the administrative burden and tax bills for some of the UK’s largest companies.

HMRC will now write to businesses that it believes may have underpaid the Diverted Profits Tax (DPT), based on sophisticated data profiling. This impacts large groups with cross-border transactions or structures typically in low tax jurisdictions.

Businesses will be asked to complete a complex self-analysis exercise to establish how much DPT they owe, if anything. If businesses do not complete this process and are later to be found to have underpaid DPT, they will face significantly higher penalties for non-compliance.

Kirsty Murray, Tax Director comments: “This is HMRC shining the spotlight on targeted multinationals to prompt a frank disclosure, or face the consequences.

“HMRC will now effectively treat these businesses as ‘guilty until proven innocent.’

“This will be a significant compliance burden for businesses who may have thought that they had dealt with this issue. The Diverted Profits Tax is a notoriously complex and subjective tax, and if businesses get it wrong, they now face potentially severe penalties.”

To discuss the potential impact of this announcement on your business, please contact Kirsty Murray.