Will Bringing Sales Onshore in the U.K. Lead to Higher Taxes?

Abstract

The authors discuss changes to the scope of the U.K. royalty withholding tax announced in the 2016 U.K. budget, which, along with the new diverted profits tax, could cause significant increases in U.K. tax paid by multinationals. As will be seen from the example set out in the article, the U.K. royalty withholding tax announced in the 2016 U.K. budget is a major portion of this increase. This will have a major impact on the economics of profit-shifting structures involving revenues that require on-the-ground sales, marketing, and other support activities in the U.K. The U.K.’s actions should be closely examined and may well be followed by numerous other countries feeling the effects of aggressive profit-shifting structures.

Keywords: United Kingdom, U.K., DPT, Diverted Profits Tax, Royalty Withholding Tax

JEL Classification: H21, H25, K34, E62