Diageo hit with £107m ‘Google tax’ bill

Johnnie Walker maker Diageo has been told it must pay UK tax authority HM Revenue & Customs (HMRC) an additional £107 million (US$138m) in accordance with new legislation dubbed the ‘Google tax’.

Amsterdam-based product development for brands such as Johnnie Walker is thought to be behind the £107m tax bill

Under the Diverted Profits Tax regime, introduced in April 2015, multinational firms must pay a 25% levy on taxable profits deemed to have been diverted from the UK.

The Spirits Business understands the £107m relates to product concepts developed at Diageo’s Amsterdam-based Centre of Excellence, which includes NPD for brands such as Johnnie Walker blended Scotch whisky.

“Diageo does not believe that it falls within the scope of the new Diverted Profits Tax regime,” the company said in a statement.

“Accordingly, Diageo will challenge the assessments when they are received.”

In order to counter the levy, the firm must pay the full amount up-front, and then work to resolve the issue with HMRC over the next 12 months.

“The payment of this sum is not a reflection of Diageo’s view on the merits of the case and, based on its current assessment, Diageo considers no provision is required in relation to Diverted Profits Tax,” the statement continues.

Diageo added that it still expects its tax rate before exceptional items to remain at 21% for its 2017 financial year.

In 2016 Diageo paid around £490m (US$633m at today’s rates) in tax globally, on profits of £2.84 billion (US$3.67bn).

The Diverted Profits Tax legislation was introduced by former chancellor George Osborne in an effort to recoup tax from international firms operating in the UK.

Although he did not mention the company specifically, the regime has become known as the ‘Google tax’ following government efforts to raise tax from the digital giant.