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Tax Avoidance: Multinational Companies

Question for Treasury

UIN 61662, tabled on 19 June 2020

To ask the Chancellor of the Exchequer, what steps he is taking to reduce levels of tax avoidance by multi-national corporations.

Answered on

24 June 2020

The UK has a comprehensive range of measures in place to tackle tax avoidance and tax planning arrangements entered into by multinational corporations.

For example, the Diverted Profits Tax (DPT) was introduced in 2015, and aims to change the behaviour of companies using contrived arrangements to avoid UK tax, by charging tax on these arrangements at a higher rate. Its primary purpose is to ensure that the profits taxed in the UK fully reflect the economic activity carried on in the UK.

Similarly, the Offshore Receipts from Intangibles Property (ORIP) regime, introduced in 2019, is designed to deal with arrangements where the UK sales of multinational groups generate significant offshore income in low or no tax jurisdictions, in circumstances where normal royalty withholding tax rules would not apply. This measure is expected to generate about £1bn of additional tax revenue over a five year period.

The UK continues to take a leading role in international efforts to tackle tax avoidance by multinationals. Following on from the OECD BEPS (Base Erosion and Profit Shifting) project, the UK is fully engaged in continuing work at the OECD in relation to the challenges of taxing the digital economy. The UK has been at the forefront of these discussions within the OECD, and will be continuing to meet virtually with the OECD Working Parties in the coming weeks and months.

With regard to the taxation of the digital economy, the UK has been clear that it favours an international agreement on this issue. In advance of an agreed outcome, the UK has introduced its own Digital Services Tax (DST) which came into force in April 2020 and is expected to generate over £2bn of additional tax revenue in the next 5 years.

The DST will be an important tool for addressing the limitations of the existing international tax framework, ensuring that businesses pay tax in the UK that reflects the value they generate from user interaction. The Government has been clear that it will remove the DST once an appropriate global solution is in place.

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