Chancellor George Osborne today announced in the annual budget that the government will introduce a new “diverted profits tax” in a bid to ensure companys like Google and Amazon pay their fair share of tax in the UK.

The tax, also known as the "Google Tax", will be introduced from 1 April and could save the UK as much as £3.1 billion over the next five years from those who have avoided paying taxes up to now, he said.

Google is about to come under closer scrutiny from the UK taxman ©iStock/gmutlu
Google is about to come under closer scrutiny from the UK taxman ©iStock/gmutlu

While Osborne did not reveal any figures today, it's likely that a Google Tax of 25 percent will be enforced on the profits of companies with annual revenues in excess of £250 million, meaning it will be higher than the general 20 percent corporate tax levied in the UK. 

The legislation should help to alleviate anger expressed by the UK public over how little tax is paid in the UK by an alarming number of new breed US tech behemoths, of which Google has become the poster child. Other culprits include Apple, Amazon and Starbucks. 

“Let the message go out that our toleration for those who will not pay their taxes will now come to an end,” Osborne told Parliament. "This is the last budget — which sets out UK spending, taxing and other government financial targets — before the next national election this May."

The legislation should make it harder for multinationals to shift their profits around the world to jurisdictions with lower tax-rates, thereby avoiding the beady eye of HM Revenue and Customs.

Under the Google Tax laws, it's expected that companies will be forced to submit more detailed business reports with revenue and profit figures on a country-by-country basis. 

The International Chamber of Commerce said the government needs to try to avoid hurting startups and SMEs through the new legislation.

“It is very important that the UK’s diverted profits tax should not catch day-to-day business transactions leading to competing international tax claims and double taxation,” it said.

Google had not responded to Techworld's request for comment by the time of publication. 

Elsewhere, Osborne also pledged to invest £100 million towards putting driverless cards on UK roads