Philip Hammond announced that, from April 2019, income tax will be applied to royalties relating to UK sales, when those royalties are paid to a low tax jurisdiction.
The new measure aims at stopping “abuse” of the British tax system after tax structures of multinationals based in the UK coming under increasing public and political pressure in recent years.
Several technology companies like Google and Apple use tax loopholes to reduce their tax bills by hundreds of millions of pounds.
It emerged last year that Google saved $3.6bn (£2.7bn) in taxes in 2015 by using a “Double Irish” tax arrangement. According to Bloomberg, €14.9bn was shifted through Google’s Dutch subsidiary, Google Netherlands Holdings BV, before going on to a Bermuda shell company.
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In his Budget announcement on Wednesday Hammond said the new rule “does not solve the problem, but it does send a signal of our determination”.
Meg Hillier, chair of the Public Accounts Committee, pointed out the new rule follows recommendations by the PAC for a tougher stance in fighting online marketplaces which “in many cases” sell goods via warehouses or ‘fulfilment centres’ physically based in the UK.
She said last month, “Online marketplaces tell us they are committed to removing 'bad actors' yet that sentiment rings hollow when those same marketplaces continue to profit from the actions of rogue traders.
“They can and should do more to drive them out and we will expect online marketplaces to cooperate fully with HMRC in tackling non-compliance.”
She added that the government should make it clear that it is not a soft touch for VAT fraudsters.