New "Google tax" to target companies shifting profits out of UK

A new UK tax on companies that shifted profits out of the country and into tax havens would target inter-company fees for services like use of intellectual property, Reuters reported, claiming to  have seen a Treasury document.

Companies would also need to report their potential liability to the new tax, which according to the note, would sit outside the existing corporate tax system. The aim was to avoid legal challenges under existing tax treaties with countries like Ireland, a major conduit for shifted profits.

According to the Treasury document, the 25-per cent tax would be effective 1 April, 2015. The  tax would target conduit-type structures, such as the ''double-Irish'' used by Google.

The manoeuvre allowed Google to deny having a taxable presence in its main business in the UK and report its annual UK revenue of over $5 billion (£3.19 billion) - in Ireland. Google then paid most of this to a Bermudan affiliate as a fee for the use of Google intellectual property.

The new rule would allow the charge paid to the Bermudan affiliate to be reduced by the UK tax authority when assessing how much profit was linked to UK activities.

Meanwhile, The Drum reported that Ireland and Luxemburg had notoriously low tax rates for multinational companies, leaving countries like Australia short-changed.

Australia did not have an effective policy response from the Federal Government to cut corporate tax avoidance as a measure to boost the budget.

Would that change following recent comments by treasurer Joe Hockey which pointed towards an imminent crackdown?

Australian prime minister Tony Abbott indicated at the beginning of the year that tax avoidance would be high on the agenda of G20 meetings taking place in Australia and overseas.

Critically Abbott stated that Australia would play a lead role in formulating effective policies both at national and international levels to cut corporate tax avoidance.

However, despite the enthusiasm for reducing corporate tax avoidance, no new measures were introduced in the federal budget this year. Rather in the lead-up to the G20, the federal government had sent mixed signals about its position on corporate tax avoidance and the enthusiasm that Abbott showed earlier in the year to lead the debate nationally and internationally had almost disappeared.