Returning to the discussion of preventing profit flow out of the UK, the Government is seeking to impose a special tax on corporates called the "Diverted Profit Tax" of 25%, which is higher than the current corporation tax of 20%, where profits are perceived to have been diverted through interest payments, royalties or patents. This has not been well received either by the OECD, which is seeking international agreement on tax avoidance nor by the UK's CBI. The interesting question is whether multinationals seek to locate outside the UK or whether they will simply re-structure their affairs.
Under the highly complicated changes the government outlined Wednesday, the British tax authorities will have extensive powers to levy a special “diverted profits tax” of 25 percent, higher than the normal corporate tax rate of 21 percent. One consequence may be that companies change their structures so they pay more corporate tax, rather than risk exposure to the higher rate.John Cridland, director general of the Confederation of British Industry, highlighted the work of the O.E.C.D. to revise international rules.