The Chancellor has promised to close loopholes which allow multinational firms to avoid paying tax in the UK.
George Osborne also set out further cuts to corporation tax, which he said would attract business to Britain and provide a boost to local firms.
In a swipe at global giants such as Starbucks and Facebook, which have been accused of not paying enough tax, Mr Osborne said he wanted to create a low tax economy but one where ‘taxes are paid’.
George Osborne, pictured, announced he will cut corporation tax from 20 per cent to 17 by April 2020
His basket of measures would raise £8billion from large companies and multinationals by 2020, he claimed.
Corporation tax is expected to be cut from its current rate of 20 per cent to 17 per cent from April 2020, saving British firms almost £15billion a year by 2020.
The tax has fallen from 28 per cent since the Coalition Government came to power in 2010. Cuts to 19 per cent in 2017 and 18 per cent in 2018 had already been announced.
The further reduction would make Britain the country with the lowest rate of corporation tax in the G20, which the Chancellor said would encourage businesses to invest in the UK.
‘Britain is blazing a trail. Let the rest of the world catch up,’ he said yesterday.
But he also pledged to close loopholes where international companies can avoid paying tax in Britain by artificially shifting profits out of the UK, such as using excessive interest payments to reduce the tax paid on profits made here.
The Government will also make changes to the way businesses can carry forward historic losses against their profits to avoid paying tax.
It will cap the amount that can be carried forward to 50 per cent of profits above £5million for a company or an overall group of companies, from April next year.
There will also be more flexibility around the rules, so that groups of several companies can carry forward losses in one arm against profits from another company within the group.
In a bid to prevent historic losses being used to avoid future tax payments, companies will only be able offset a quarter of profits with pre-2015 losses. There will be an exception for banks hit by the financial crisis and mis-selling scandals.
Mr Osborne will cap relief on interest payments used to reduce tax paid on UK profits at 30 per cent of UK earnings, with exceptions for groups with legitimately high interest payments.
The Government also said it would introduce rules to stop multinational companies using a complex technique called ‘hybrid mismatches’ to avoid paying tax in any of the countries they do business in.
And the Treasury will more closely tax outbound royalty payments – fees for using intellectual property such as patents and copyrights – meaning multinationals will pay more tax in the UK. It will also make sure offshore property developers are taxed on their UK profits.
Mr Osborne also promised to help small businesses who sell online deal with ‘the great unfairness’ of trying to compete with global giants like Amazon and eBay by tackling overseas retailers who store goods in Britain and sell them online without paying VAT.
Dermot Callinan, of accountancy giant KPMG, said the measures benefited entrepreneurs and smaller companies, but larger firms could lose out.
He added: ‘This seems to be a deliberate tilt of the pitch toward home-grown enterprise through a number of measures.’
Laurence Field, of accountancy firm Crowe Clark Whitehill, said: ‘While the reduction of corporation tax will be welcomed by business, in practice it reflects the fact that corporation tax is becoming a lot less important.
‘Tightening up on “loopholes” around pay is much more cost effective. The take is bigger and it costs a lot less to collect.’
Carolyn Fairbairn, director general of the CBI, said: ‘The reduction in the headline corporation tax rate sends out a strong signal that the UK is open for global business investment, and reforms to interest deductibility are rightly in line with the international consensus.’
But she added: ‘Changes to the tax treatment of losses will make it harder for larger scale-up firms and companies that have been through tough times to play their part in the recovery.’
Mark Boleat, of the City of London Corporation, said: ‘Tax reforms to attract multinational firms to the UK are a welcome measure. We need to make sure the UK remains a globally competitive place to start, run and grow a business.
‘A further reduction to corporation tax by 2020 to 17 per cent sends a strong signal to the world that the UK is the number one destination for these world-leading firms.’