In November 2012, a startled TV audience watched coverage of the House of Commons Select Committee questioning Google's chief executive about why his business, with ostensibly billions of pounds in sales generated in the UK, accounted for UK corporation tax in an amount equivalent to the price of a single London suburban home. 

The exasperation of the committee was reflected in the fierce questioning by Labour's Committee chairperson, Margaret Hodge.  Yet the question revealed an unpalatable truth:  profit shifting from higher corporation tax jurisdictions to lower ones was, and remains, a legitimate reality for global business.  

The public reaction to this revelation was immediate: anger, combined with  resignation, as well as a sense that  global companies, by finding a way to treat UK corporation tax as irrelevant, were engaging in mischief. The Select Committee's subsequent report reflected that sense of resignation; the report seemed to hope that expressing its moral indignation would shame a corporation that, in truth, had no moral obligation to the UK Exchequer.

No doubt the angry responses of British voters reached the ears of government policy makers.  In his Autumn Statement of 5 December 2014, Chancellor of the Exchequer George Osborn outlined HM Government's proposal for a new Diverted Profits Tax (DPT) at a rate of 25 percent to counteract such tax structures as those enjoyed by the likes of Google. Indeed, the new tax has been dubbed the Google Tax.

With DPT, the UK government hopes to counteract what it regards as the artificial diversion of profits by global corporations.  A particular target of the tax is the "double-Irish" structure that Google uses to pay very little corporation tax in the UK.

From 1 April 2015, it is the companies themselves (those with a turnover in the UK in excess of £10 million per annum) that must notify HMRC if they believe they are liable to DPT, based on how much profit is channeled out of the UK. The companies must ascertain whether their main purpose is to avoid creating a UK taxable presence or whether there is a decrease of at least 20  percent tax payable by the foreign company as a result of the tax structure. For example, in the double-Irish structure, Google has a permanent UK arm with a large staff in London, which pays almost no corporation tax because the British sales are made by an Irish subsidiary.  The proceeds are then channelled to another subsidiary in Bermuda as payment for using intellectual property.

The test to be applied by the company consists of the relatively low threshold of a "reasonable assumption" that the company will have diverted profits for an accounting period.  The company must then notify HMRC within three months of the end of the accounting period, after which (if notified) HMRC has two years to explain why DPT is payable or (if not notified) four years from the end of the accounting period.

In the City of London, lawyers and accountants are already expressing some disquiet about DPT, which appears to be corporation tax by another name.  The UK has a number of double taxation treaties that may be offended if in reality DPT is found to be"substantially similar" to corporation tax. Further, globalisation and its EU equivalent of freedom of establishment will inevitably lead to choice about where businesses are set up.  It is a long established principle of tax law that companies are not necessarily in business to pay tax.

We will wait and see if DPT gives big business an appetite for judicial review.  Meanwhile, the introduction of DPT is to be accompanied by a consultation process, which in itself alleviates the suggestion of the government acting outside its powers. There is recent precedent for HM Government being challenged on the legitimacy of introducing a levy. An injunction was sought by interested parties to prevent the implementation of the aggregates levy on the basis that certain exemptions to the levy constituted state aid. The injunction failed because the High Court was required to take into account public policy in its judgment.

Overall, though, it looks like HM Government's policy will prevail and, crucially, it will do so before an election in which the votes of hard-working British families are sought.