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One issue that many governments face around the world is tax avoidance by major tech companies. Clever accounting methods by these companies sees profits from local operations diverted offshore, which keeps their tax bills low, understandably annoying governments that lose out on tax revenue.
The United Kingdom is one such nation sick of losing tax revenue to diverted profits, and their solution is to implement a 'Google Tax'. This tax, which is currently just a proposal set to be introduced with the UK budget later this month, will capture 25% of major companies' profits from UK operations, so long as the company accrues more than £250 million in annual revenue.
More importantly, the Google Tax will be accompanied by far stricter corporate reporting rules, which would require major companies to disclose their revenue and profit from operations in each country they operate in. This would result in the UK government knowing exactly how much a major company such as Google makes in the country before they shuffle profits away to tax havens.
This new tax is specifically targeted at major tech companies such as Google, who operate in the UK, employ thousands of people, generate billions in revenue, yet don't have a "permanent establishment" which then allows them to divert revenues overseas. Although this tax avoidance is technically legal, it draws strong criticism from many who deem it unfair.
While Google isn't the only major company being targeted - Facebook, Amazon and Apple have been scrutinized for avoiding tax as well - their financial reports paint a damning picture. In 2013, Google reported £3.6 billion in revenue from local operations in the UK, but only paid £20 million in tax. This new tax, combined with stricter reporting rules, will cut down on this level of tax avoidance.
Unsurprisingly, these companies are warning the UK government not to implement the Google Tax, saying it will result in less investment in the UK.