A leading sector advisor has said that the Government is treading a fine line with plans to introduce a Diverted Profits Tax.

The new Tax, at 25%, is higher than the standard 20% rate of UK corporation tax and is designed to hurt companies, which have been legally diverting UK sales and profits through offshore havens such as Ireland and Luxembourg.

The Chancellor George Osborne expects the tax, to be introduced in April, to raise £1.3bn over the next five years.

Paul Hemming, lead leisure partner at Zolfo Cooper Advisory, said: “This was clearly an Autumn Statement from a government gearing up for an election year, with lots of crowd-pleasing announcements – the true merit of which can only be judged with time, and once the proper and rigorous analysis emerges.

“The Starbucks Tax, or Diverted Profits Tax to give it its proper title, seems such an initiative. The idea of a government clamping down on multi-national and high profitable companies not seen to be paying their dues in the UK will play well with the majority of voters.  However there is a fine line between ensuring companies do not avoid paying tax whilst at the same time not penalising businesses that are investing significantly in the UK, building restaurants and creating jobs. 

“There also must be a risk that such a law will be hugely complex and costly to implement, and will challenge tax lawyers to seize on a significant fee opportunity by devising ways of successfully circumnavigating such a law.  It will be fascinating to see the detail for how the government intends to tackle this issue.”