Major multinational tech firms such as Google, Apple, and Amazon are going to have to pay more money if they keep shifting their profits abroad. UK Chancellor George Osborne just announced a new tax levy that will require multinational companies that operate in the UK to not avoid tax by moving shifting their pre-tax profits out of the country. This new tax levy is part of Osborne’s Autumn Statement 2014 and will be effective April 2015. The tax which is called the “diverted profits tax” or as the media has dubbed it, the “Google Tax,” the new plan should generate revenue from large tech corporations that have been dodging UK’s tax which sits at just 21 percent.
So what exactly is this “diverted profits tax?” Well for a while now, companies like Google, Apple, Amazon, and even Starbucks have been raking in money within the UK and then taking the money to other countries. These “other” countries include Ireland and Luxembourg, which have a lower tax. By shifting their profits, these large tech companies have been able to dodge UK’s 21 percent tax. The Diverted Profits Tax that will soon take place next year will hopefully stop these companies from shifting their revenue to other countries with a lower tax. The way this will work is that any company that conducts a lot of activity in the UK and moves their profits to another country will be hit with the “Google Tax” which is 25 percent. With a 4 percent increase, the UK is hoping that companies like Google and Apple will just pay the 21 percent.
The next question that this entire situation boils down to is will it affect the consumer? That’s a tricky question as of right now to give an answer to. The new tax puts companies like Google in a dilemma because now they have to come up with a plan to raise additional funds. The “Google Tax” is by far the fairest solution since it places a blanket of fair competition over everyone. On the other end of this new tax, it is possible that the consumer will have to fork up a little more cash on top of the already high priced items that are sold in the UK thanks to import cost and taxes. Going back to the companies that reside in the UK, it will be of great benefit for them since they can fairly compete with companies like Google and Apple. The true outcome of this new plan won’t unfold until next year when the Diverted Profits Tax goes into effect, so we will have to wait for the new year to see how this will work out.