Cliff Taylor: ‘Google tax’ amounts to pure politics

The so-called Google tax will be law in Britain by Wednesday evening, as the Finance Bill, published on Tuesday, is enacted. It is not much time for legislators to consider a bill of more than 250 pages.

It is a nakedly political move by chancellor George Osborne, trying to outflank Labour criticisms that the Conservatives are too close to big business. The move has implications for Ireland as it will affect big multinationals operating in both markets.

The new tax -officially called the diverted profits tax -is to come into operation from the start of next month. It is designed to catch economic activity which is undertaken in Britain but not taxed there now, because the multinational concerned declares the income from the activity in another country.

Some big multinationals have sales staff in Britain, but would declare a lot of the related income for tax in other countries where they have their European headquarters, such as Ireland.

The new law is designed to impose a tax of 25 per cent on such income, though the initial reaction from tax professionals was to question exactly how it would work in practice.

There is no “right” answer as to where such income should be taxed, as by their nature big tech companies operate across borders. The OECD is currently examining the issue as part of a major international project which is expected to lead to significant changes. However Osborne has moved unilaterally, no doubt with the May election in mind.

This will be an issue for big multinationals with their headquarters here who have sales in Britain, though uncertainties remain about how it will work in practice. The EU Commission will also want to examine the law, to see does it comply with EU rules. It then remains to be seen how it will fit with any wider OECD-led initiative.

Irish sources say that the multinational reaction to the Google tax could work to Britain’s disadvantage in terms of attracting new investment. However the Osborne move is also a signal of a changing international mood which is questioning the low tax contribution of some of the big multinationals. A sub-plot are tensions over where tax should be paid. All this is a function of national exchequers which are short of cash.

The net result is likely to be an increased tax contribution from the big firms, though it remains unclear whether the Irish exchequer will be a beneficiary of this.