George Osborne Wants to Institute a “Google Tax”

George Osborne Wants to Institute a Google Tax“The UK is the country with the fastest growth among major advanced economies.” Five months before elections whose results are hard to predict, the traditional autumn budget speech, delivered on Wednesday, December 3, was an opportunity for the Chancellor of the Exchequer, George Osborne to draw up a beneficial and triumphalist balance sheet for the action of the government of Cameron. The Minister of Finance, architect of the austerity policy pursued since 2010, deployed before the deputies a whole range of positive statistics and flattering comparisons – at the expense of France in particular – without forgetting to address a few winks to voters.

He has, however, been more discreet about the government’s inability to reduce the deficit this year amounted to 5.3% of gross domestic product – one of the highest in Europe – which led him to advocate the continuation of a drastic policy of reducing expenses.

With 3% growth expected for 2014, while the euro zone is struggling to emerge from stagnation, Mr Osborne, it is true, has reasons for complacency. Our growth is “two and a half times faster than that of Germany, seven times more than that of France,” he trumpeted ironically within the proximity of the Labour leader Ed Miliband and President François Hollande. Spurred by growth in consumption and investment, the UK recovery has reduced unemployment to 6%. “We are creating 1,000 jobs a day,” gloated the Minister.

While the Conservatives are considered much more credible in economic matters than the Labourites, these good figures will be their best foot forward in the election campaign, which in fact, opens with Wednesday’s speech.

The minister tried to minimize its failure on the budget deficit by claiming the heaviness of the legacy of the Labour government, the international situation and the decline in North Sea oil revenues, to make the listeners forget that he had promised achieving balance in 2015. This target is thus delayed until 2018, provided that the Conservatives are still in power.

A pre-election gift

One of the main causes of the high deficit lies in the weakness of tax revenues, which fell five times lower than expected this year. This fiscal weakness lies in the fact that many of the newly created jobs are low-skilled and poorly paid, and that their holders produce therefore little or no taxable income. The Conservatives have “betrayed their promises on the economy,” responded Mr. Miliband.

Despite this deficit, Mr Osborne pulled out of his hat a highly symbolic pre-election gift to the country obsessed with access to real estate: the stamp duty paid on property sales will become more progressive. The change has the effect of reducing the price of the stamp in 98% of transactions. This will increase only for the most expensive housing (over 1.2 million). For the average price property, the economy will be approximately 5,000 euros.

“Google tax”

Mr Osborne will fund this gesture to three targets: banks, multinationals new technology and rich foreigners. Fair game, six months before election. The tax that must report the most (nearly 1 billion euros per year) will be imposed on financial institutions. Currently, they can deduct from their tax slate losses incurred in previous years. “Some banks will do well to pay taxes for fifteen or twenty years,” accentuated Mr Osborne. He decided to cap the amount of losses that can be deducted.

The second tax is a kind of “Google tax” which is blurred but, according to the Treasury, must report more than 400 million euros per year. It is imposing a 25% profits in the UK, but “artificially transferred to another country.” Mr Osborne refers to companies like Google or Amazon, which are very active in the UK but pay very little taxes. How to identify the money transferred “artificially”? Some tax experts suspect that this announcement will actually be a way of preempting major international reforms, including future obligation for companies to publish their country by country benefits.

Finally, rich foreigners who benefit from the system of “non-domiciled” will be involved. According to this system, very advantageous for large fortunes, you only pay taxes on the money repatriated to the UK. The money that remains outside the borders is exempt. To use this system, one must pay a sum of 60,000 euros per year. This amount will now go up to 115,000 for those living in the UK for over seventeen years.

Mr. Osborne is companies like Google or Amazon, very active in the UK but who pay very little in taxes by using complex mechanisms to shift profits out of the country.

Mechanisms of new taxation still blurred

“Today I establish a 25% tax on the profits that multinationals performing here in the UK and will then transfer artificially out of the country,” said Mr Osborne. “Some of the world’s largest companies, including those in the technology sector, resort to complex devices to evade taxes. We will ensure that large multinationals pay their share.”

This kind of “Google tax” should, according to the Treasury, report more than €400 million per year. But this perspective is still, at this stage, very blurred.

European proposals

This British initiative follows the European trend to “move” things. In a letter dated November 28 addressed to the European Commissioner for Economic and financial affairs, taxation and customs union, Pierre Moscovici, Paris, Berlin and Rome proposed the introduction of a European directive on anti-tax optimization for 2015.

The French, German and Italian offer to quickly implement the anti-tax optimization plan of action is advocated by the OECD (Organisation for Economic Co-operation and Development).

Mandated by the G20 (the twenty most powerful countries), the OECD has developed five measures to fight against aggressive tax avoidance practices that deprive States each year of tens of billions of euros in tax revenue. A part of these measures has already been adopted at the G20 summit in Australia, November 15 and 16. The other must be achieved by the end of 2015.

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