The Treasury has released more details of the so-called Google tax, a new tax on diverted profits designed to prevent large multinationals from shifting profits to entities established in tax havens in order to avoid paying corporation tax say Harris & Co accountants Northampton #accountantsnorthampton

The diverted profits tax (DPT) will apply from 1 April 2015 at a rate of 25% on diverted profits relating to UK activity and will be payable within 30 days after the issue of a charging notice by a designated HMRC officer report Harris & Co chartered accountants Northampton

HMRC has estimated that the tax will raise around £25m in the first year of operation rising to up to £360m a year by 2017/18.

It follows the announcement in the Autumn Statement that the Treasury planned to take action on multinationals who use ‘complicated business structures, such as the so-called “double Irish”, in order to avoid paying taxes’.

The charge will arise if either of two rules applies. The first addresses arrangements which avoid a UK permanent establishment (PE) and comes into effect if a person is carrying on activity in the UK in connection with supplies of goods and services by a non-UK resident company to customers in the UK, provided that the detailed conditions are met.

There is an exemption for foreign companies where total sales revenues from all supplies of goods and services to UK customers do not exceed £10m for a 12-month accounting period. The DPT will not reflect any profits relating to transactions involving only loan relationships.

The second rule will apply to certain arrangements which are ruled to ‘lack economic substance’ involving entities with an existing UK taxable presence. The Treasury said the primary function is to counteract arrangements that exploit tax differentials and will apply where the detailed conditions, including those on an ‘effective tax mismatch outcome’ are met.

The first rule only applies where the UK person and the foreign company are not small or medium-sized enterprises (SMEs) and the second rule where the two parties to the arrangements are not SMEs (the SME test will apply to the group).