Press release

Peter Vale comments on UK Budget 2015

Peter Vale Peter Vale

One of the main features of the UK Budget 2015 is the so called “Google Tax”. The introduction of a special tax aimed at the same multinationals that the UK has been trying to attract, seems strange? Peter Vale, Tax Partner, analyses the UK Budget.

One of the most interesting features of the UK Budget is the so called “Google Tax”, a new tax aimed at multinationals that have significant sales in the UK but pay relatively low levels of corporate tax there.

Over the last number of years, the UK has taken significant steps to make its tax regime more attractive to foreign investors, with low corporate tax and other generous tax incentives key planks of what has been a very successful strategy. So on the face of it, the introduction of a special tax aimed broadly at the same multinationals that the UK has been trying to attract, seems strange.

What also makes it seem unusual is that the perceived tax avoidance strategies of large corporations are currently the focus of the OECD’s BEPS project, of which the UK is a key member. Hence, arguably there was no need for the UK to act now as the BEPS project is also targeting many of the same issues that the “Google Tax” is trying to tackle.

It’s not unreasonable to speculate the new tax is more politically driven, in particular given that the tax revenues expected to be generated are minimal. Ultimately of course it will likely be the UK consumer who bears the cost of any additional taxes.

From an Irish perspective, any overseas taxes that an Irish based foreign multinational pays makes our tax regime less attractive as it negates the benefit of the 12.5% rate. If the “Google Tax” was implemented in other large countries, this would undoubtedly cause companies to look at the tax benefits of Ireland.

However, another significant feature of the new global tax environment will be a focus on substance, that is, jobs. This is likely to be the key driver of where taxable profits will be located in the future, not where sales are generated. Hence multinationals looking at a base to expand into Europe or further afield will seek a country with both a low tax rate and a supply of skilled labour. As Ireland ticks both of these boxes, and others, we are in a strong position to attract future foreign investment as we offer a long term sustainable solution.

Putting the “Google Tax” to one side, the UK offers much to foreign multinationals in terms of an attractive tax regime, with Northern Ireland’s own proposed 12.5% tax rate now much closer to a reality. While clearly this represents a competitive threat to Ireland, arguably we will also benefit from the ability to offer an “all island” low tax rate. If overall the island of Ireland attracts additional investment, then both sides of the border should gain.