The European Commission is to examine Britain’s proposal for a so-called Google tax to assess if it is in compliance with internal market rules.
Speaking in Brussels yesterday, a spokeswoman for the commission said that, while it supported efforts to tackle tax avoidance, countries must ensure that tax measures comply with single market rules.
“If member states do decide to take action on tax matters, they have to make sure that these measures comply with EU law and single market principles when designing new measures,” she said.
However, the commission was not yet in a position to comment on the proposal as Britain had not explained exactly how the tax would work.
A more detailed plan of the measure is expected to be presented by the British treasury late next week.
Tax of 25%
British chancellor of the exchequer
George Osborne
announced on Wednesday his intention to introduce a 25 per cent tax on corporate profits derived from activity in Britain, but which are channelled through other countries, in an effort to clamp down on aggressive tax planning.
Citing the tech sector in particular, the chancellor said that some of the world’s largest companies “use elaborate structures to avoid paying taxes”.
“That’s not fair to other British firms. It’s not fair to British people either. Today we’re putting a stop to it,” Mr Osborne said.
EU internal market rules permit companies to operate across borders within the European Union, putting a question mark over the compliance of the proposed “Google tax” with EU rules. Tax advisers have also questioned how the new tax would work in practice, noting the difficulty of establishing whether companies are, in fact, illegally avoiding taxes.
A move by Italy earlier this year to introduce a tax on tech companies, which aimed to ensure that firms advertising and selling goods in Italy pay taxes there, was abandoned. There was resistance from the European Commission, though EU officials yesterday stressed that the Italian case differed from the proposed British "Google tax".
Five-year plan Mr Osborne’s announcement comes amid renewed focus on multinational tax avoidance at a global and EU level.
The European Commission has pledged to prioritise aggressive tax planning over its five-year tenure, and plans to unveil a directive on the automatic exchange of information on tax rulings early next year.
“We are aware of the UK’s announcement that they intend to introduce a new diverted-profits tax which they intend to use to counter aggressive tax planning,” a commission spokeswoman said yesterday.
“The fight against tax avoidance and aggressive tax planning is one of the top-10 priorities of this commission and, at this stage, we fully support the UK’s objective of ensuring that businesses pay their fair share of tax.
“That said, the UK has not yet explained exactly how this new tax will work, so we are not yet in a position to comment until the full details are known.”
She added new measures introduced by member states “must comply with EU law and single market principles”.
