Budget 2015: Osborne clamps down on corporate tax evasion
Chancellor of the Exchequer George Osborne will introduce new measures designed to raise £3.1 billion in previously lost corporation tax.
In his budget speech on Wednesday the Chancellor confirmed that the government's new Diverted Profits Tax, aimed at large multinationals who artificially shift their profits offshore, will come into effect at the end of April.
The legislation is designed to curtail the behaviour of large global corporations such as Amazon and Google who have operations in the UK but avoid paying UK corporation tax by having the headquarters domiciled offshore in Ireland and Luxembourg.
The 25% tax will be levied on diverted profits relating to UK activity regardless of where the firm is domiciled. The Chancellor adds that the government will also no longer allow businesses to take account of foreign branches when reclaiming value added tax on their overheads.
Speaking in the House of Commons, Osborne says: "Let the message go out: this country's tolerance for those who will not pay their fair share of taxes has come to an end."
Osborne is also amending corporation tax rules to prevent "contrived loss arrangements", where companies obtain a tax advantage by manipulating historic tax losses into in-year deductions.
The government will also close loopholes to make sure that Entrepreneurs Relief is only available to those selling genuine stakes in businesses and will issue more accelerated payments notices to those who owe tax.
Taken together, the Chancellor claims that all the new measures against tax avoidance and evasion will raise £3.1 billion over the forecast period while £5 billion should be raised through curtailing tax avoidance by 2018.
However, many do not believe that the measures go far enough, including John McDonnell, Labour MP for Hayes and Harlington and chair of LEAP Economics: 'The Chancellor issued a blitz of statistics claiming living standards are rising, but they bear no relationship to the reality of peoples' lives.
"His miniscule £5 billion target on tax avoidance is less than 5% of the total tax gap, but he proposes to hit us all with £30 billion of cuts to public services and benefits. Ordinary people will continue to pay to protect tax avoiders," claims McDonnell.
This article was written for our sister website Money Observer
The practice of locating your financial affairs (banking, savings, investments) in a country other than the one you’re a citizen of, usually a low-tax jurisdiction. The appeal of offshore is it offers the potential for tax efficiency, the convenience of easy international access and a safe haven for your money. However, offshore is governed by complex, ever-changing rules (such as 2005’s European Union Savings Directive) and, as such, is the exclusive province of the wealthy and high-net-worth individuals.