The right amount of tax? Who decides?

26 January 2016

Rebecca Reading 

It’s been an interesting week for tax and the multinationals, with much made in the press about Google’s £130m tax deal with HMRC, and further announcements on anti-tax avoidance measures expected. The strong views expressed show that there are still some tough questions when it comes to the taxation of large corporates.

Few will have missed the furore last weekend over the news that Google and HMRC have come to an agreement over ten years disputed corporate tax returns.

Initial commentary from the government suggested that the additional £130m tax bill was considered a good result, and perhaps they did not anticipate the backlash they received. The UK has been a vocal supporter of the OECD project to fix the international tax system (the BEPS project) and has already begun to make law changes that will tackle avoidance by multinationals. The agreement with Google is for historic liabilities, although their comments suggest that they have been influenced by the BEPS project and the need to align tax revenues with value creation. 

We would be surprised if this is found to be some sort of special ‘sweetheart’ deal by HMRC. Unlike some of our European neighbours, the UK tax system is less prone to negotiation and focuses on the application of the law. There are, of course, still grey areas and such debates between the taxpayer and HMRC can often be protracted, so this in itself is not unusual.

If there is something too generous here, then is there a possibility that it could be undone by Europe - in the same way as the deals done by Luxembourg for Fiat, and the Netherlands for Starbucks have been found to be illegal state aid? There is no sign of any let-up from the EU Commission on tax issues, with indications that further announcements on new anti-tax avoidance measures thought to be imminent, but again these are expected to be in line with the BEPS project recommendations.

The BEPS project has a lot riding on it. Scanning through the Actions 1-15, it is clear that  the UK is an early adopter, whatever might be said about the Google situation.  A remaining challenge, and one acknowledged by the OECD, concerns how disputes should be resolved. The EU Commission approach is an imaginative one, to address direct tax deals using state aid rules. This does, however, leave the taxpayer outside the normal rules for dispute resolution. Or in a situation like Google, if a multinational pays more tax in the UK, it should pay less somewhere else.

How much less and when should that refund be made are difficult questions for any tax authority to address.

For further information please contact Rebecca Reading or your usual RSM contact. 

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