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Invest-Smart.org
Tax Crackdown: Multinational Firms and
Banks in UK
Taxes and Investment
Invest Smart
December 2014
Invest-Smart.org
A crackdown on tax breaks for banks & tax avoidance by multinational firms will raise
about £5bn over fiv...
Invest-Smart.org
Mr. Osborne’s forecast that the measure would generate £4bn over five years carries a
“very high uncertai...
Invest-Smart.org
Mr. Osborne’s crackdown on multinationals is expected to be part of a wider international
effort to curb ...
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Tax Crackdown on Multinational Firms and Banks in the UK

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Multinational firms and banks in the UK are being targeted for unfair tax avoidance schemes. Chancellor George Osborne intends to tighten rules so that banks and large corporations pay their fare share of taxes.

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Tax Crackdown on Multinational Firms and Banks in the UK

  1. 1. Invest-Smart.org Tax Crackdown: Multinational Firms and Banks in UK Taxes and Investment Invest Smart December 2014
  2. 2. Invest-Smart.org A crackdown on tax breaks for banks & tax avoidance by multinational firms will raise about £5bn over five years, Chancellor George Osborne has said. Rules allowing banks to offset losses made in the financial crisis against future profits will be tightened. And a 25% tax is being imposed on “profits generated by multinationals from economic activity in the UK which they then artificially shift” abroad. Banks will pay an extra £4bn in tax, and multinationals £1bn, he said. The chancellor said: “Under the rules we inherited banks can offset all their losses from the financial crisis against tax on profits for years to come. Some banks wouldn’t be paying tax for 15 or 20 years. That’s totally un- acceptable. ”The banks got pub- lic support in the crisis and they should now support the public in the recovery.” He intends to limit “the amount of profit in established banks that can be offset by losses carried forward to 50% and delaying relief on bad debts.” The banking industry said it would work with the Treasury to implement the new rules. “Banks contribute more than £25bn each year to the nation’s public finances – enough to pay the salaries of around half a million nurses,” said Anthony Browne, chief executive of the British Bankers’ Association. “It is absolutely right that this important industry pays its fair share of tax, but it is import- ant to note that where banks have offset losses they have done so legally, just as all other businesses can.” ‘Fair share’ There was also a question mark over how much the chancellor would raise from the tax changes.
  3. 3. Invest-Smart.org Mr. Osborne’s forecast that the measure would generate £4bn over five years carries a “very high uncertainty rating”, according to the Office for Budget Responsibility (OBR), which publishes an independent assessment of government forecasts alongside the Autumn Statement. Its report said the money raised could be “considerably higher or lower” than Mr Os- borne’s estimate, because forecasting the size of banks’ profits over the next few years is too complicated. Meanwhile, he plans to introduce measures designed to help curb the way some big busi- nesses avoid tax by shifting profits to jurisdictions outside the UK. He said: “Some of the largest companies in the world, including those in the tech sec- tor, use elaborate structures to avoid paying taxes. Today I am introducing a 25% tax on profits generated by multinationals from economic activity here in the UK which they then artificially shift out of the country.” Companies such as Google, Amazon and Starbucks have been accused of using such strategies, although all say that they operate within the law. Multinational companies must pay their “fair share” of tax, Mr. Osborne said, adding: “My message is consistent and clear. Low taxes; but taxes that will be paid. This new Diverted Profits Tax will raise over £1bn over the next five years.” However, BBC business editor Kamal Ahmed said the chancellor’s comments lack detail, and “an awful lot of work will have to be done on what exactly are diverted profits”. The OBR also cast doubt on Mr. Osborne’s assumption that the tax change would raise £1bn. Predicting how multinationals would respond is difficult. “The behavior change is likely to be volatile and large due to the characteristics of the companies targeted by this mea- sure,” the OBR said.
  4. 4. Invest-Smart.org Mr. Osborne’s crackdown on multinationals is expected to be part of a wider international effort to curb multinationals’ tax avoidance and evasion. In September, the OECD group of leading industrial nations unveiled an action plan to stop companies shifting profits from one country to another. Under the OECD plan, supported by the UK, a country-by-country model would require firms to declare their revenue, profit, staffing and tax paid in each jurisdiction.

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