What is the Google Tax?

The Google Tax is a UK tax introduced to tax multinational internet companies that divert UK profits to lower taxing foreign countries. It’s a diverted profits tax but is known as the Google tax as it target’s Google’s low tax payments. In the 2013 financial year, for example, Google recorded £5.6 bn of UK sales but only paid £20.4 m in UK corporate tax.

The UK tax only applies to large companies and is assessed at 25% of taxable diverted profits. The tax predominantly applies to UK profits funnelled to tax havens via contrived arrangements. The tax has resulted in many internet companies restructuring their businesses to avoid the Google tax. Amazon, for example, restructured their businesses to start paying tax in the UK on British retail sales rather than booking deals through Luxembourg.

The Google Tax is highly political and although working as intended, is not a great revenue raiser. The UK Treasury estimates the tax will only raise £350m per year. Following the UK’s lead, several countries including Australia and Spain, have subsequently implemented their own Google Tax.