|George Osborne was also in the Global Tax 50 2014|
"Let the message go out: this country's tolerance for those who will not pay their fair share of tax has come to an end," proclaimed UK chancellor of the exchequer George Osborne in March as he announced new measures to crack down on tax avoidance and evasion, including the headline-grabbing diverted profits tax (DPT) – referred to by some as the 'Google tax'.
The tax, which came into effect on April 1, is expected to raise £3.1 billion ($4.4 billion) from multinationals by 2020. It imposes a tax rate five percentage points higher than the otherwise applicable UK tax rate, and is applied to profits which companies are deemed to have "artificially diverted" from the UK.
The measure was likely taken with one eye on the UK general election, from which Osborne's Conservative party emerged victorious, managing to secure a slim majority which allowed them to dispense with their coalition partners from the previous government.
While the narrowness the Conservative majority may make it difficult to pass some legislation – particularly any which might substantially cut tax revenues garnered from companies, given the shift to the left of the main opposition Labour party – the government has managed in many instances to sidestep parliamentary scrutiny by using 'statutory instruments', which can approve new legislation without the need for a House of Commons debate.
In his first Budget of the new government, Osborne announced that corporation tax will fall to 19% in 2017 and by a further percentage point in 2018, as part of the government's aim for the UK to have the most competitive tax regime in the G20 and send a strong signal to investors that Britain is 'open for business'. Osborne will hope that the inflow of businesses – and many are relocating to Britain, both from Europe and further afield – will help plug the hole which still remains in the UK's finances, as deficit reduction targets have been missed due to lower-than-expected growth.
The past 12 months saw Osborne come under challenge over the UK's attractive patent box regime, however, which faced regime-tweaks in order to comply with the modified nexus approach heralded by the OECD's BEPS Project. Despite those modifications, and the expected uptake of the majority of BEPS recommendations, Osborne is still steering the UK down the pro-tax competition path and the country retains a range of attractive tax credits for businesses.
An important task for Osborne during the year ahead will be preparing for the 2017 referendum on the UK's EU membership. The referendum, which looked to be set for a cut-and-dried 'in' vote when it was announced, is now a much closer affair.
Osborne is likely to position himself in favour of staying in, in accordance with most businesses. Should he negotiate the next few years successfully, he will have his eyes firmly fixed on the leadership of the party – Prime Minister David Cameron has announced he will not seek a full third term, and Osborne is among the front-runners to succeed him.