The UK government will introduce a new “diverted profits tax” to ensure that multinational corporations pay the correct about of tax, British Chancellor of the Exchequer George Osborne announced December 3 in his Autumn Statement. The UK also released a consultation on hybrid mismatches, and Osborne reaffirmed the UK’s intention to introduce country-by-country reporting for MNEs.
Osborne said the UK will impose a 25 percent tax on profits generated by multinationals from economic activity in the UK which is artificially shifted out of the country. The diverted profits tax will affect large multinationals “including those in the tech sector [that] use elaborate structures to avoid paying taxes,” he said. The proposal will be effective April 2015 and is expected to raise more than £1 billion over the next 5 years.
Details about the proposed tax are scant; it is unknown how it would fit in with EU law and UK tax treaties. In an accompanying release, the government said that “if a company conducts a lot of activity in the UK – sales, for example – but can avoid paying corporation tax by moving profits generated in the UK to other countries through the manipulation of the international tax rules, the UK will now be able to tax those profits at a rate of 25%.”
Hybrid mismatch consultation
The government also released a consultation on the implementation of G-20/OECD recommendations for neutralizing hybrid mismatches under the base erosion profit shifting plan. The UK intends to introduce hybrid mismatch rules to apply to payments made on or after January 1, 2017.
Rather than propose legislation, the government has asked for responses to 26 questions to guide the government when it drafts the rules. Unresolved issues include the treatment of hybrid regulatory capital and income taxed under a controlled foreign company regime, and the refinement of issues relating to stock lending, repos, and imported hybrid mismatches.
Feedback is also requested on OECD/G-20 recommendations relating to modifying treaties to neutralize hybrid mismatches. Responses to the consultation will also assist the UK in its contribution to ongoing OECD work to finalize a small number of outstanding issues in the hybrid mismatch report and to develop a commentary to the OECD/G-20 report to which will explain the operation of the rules in more detail and which to be published September 2015.
The consultation will run until February 11, 2015.
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