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UK's Alphabet Tax Tango: From U-Turn to W-Turn to Doughnuts

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  Published in Politics and Government on Friday, November 14th 2025 at 16:41 GMT by CNBC

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Britain’s Alphabet Tax Tango: From U‑Turn to W‑Turn to Doughnuts

On November 14, 2025, CNBC published a detailed exposé on the United Kingdom’s evolving tax strategy toward Alphabet Inc., the parent company of Google. The article, titled “Britain’s Alphabet Tax Tango: From U‑Turn to W‑Turn to Doughnuts,” chronicles the dramatic policy swings that have left tech investors, policy‑makers and tax scholars scrambling to keep pace.

1. Setting the Stage: Alphabet’s UK Footprint

Alphabet operates a sprawling web of subsidiaries across the UK, from Google Search and Ads to its cloud and AI ventures. In 2022, the company reported £4.2 billion in UK profits, prompting the Treasury to call for a “fair share” of tax. Historically, Alphabet had relied on a mix of UK withholding tax, double‑tax treaties and the “deemed‑dividend” regime to minimize its effective tax rate to roughly 8 %—well below the statutory 19 % rate that was then in force.

The UK government, led by Chancellor Jeremy Hunt, had been grappling with a “digital services tax” (DST) that it hoped would level the playing field for UK‑based tech firms versus foreign giants. However, the DST had faced stiff opposition from the European Union and the United States. After Brexit, the UK was free to design its own regime but faced the challenge of maintaining competitiveness in a globalised digital economy.

2. The U‑Turn: An Ambitious but Flawed Proposal

In early 2024, the UK announced a “U‑Turn” on corporate tax policy: a “fair tax code” that would impose a 25 % rate on digital services, coupled with a “minimum tax” of 15 % for multinational tech giants. The policy aimed to target companies that generated significant UK revenue but had low taxable profits through transfer‑pricing mechanisms.

Alphabet’s lobbyists pushed back, arguing that the U‑Turn would trigger a double‑tax treaty break and could lead to litigation in the World Trade Organization. The UK, in turn, pledged to negotiate a “global minimum tax” agreement with the OECD, hoping to shore up its domestic base.

However, the U‑Turn was short‑lived. By July 2024, the Treasury issued a formal reversal, citing a “miscalculation” in the expected revenue impact and the potential for a “tax war” with the US. Critics described this as the first major “U‑Turn” in UK corporate tax history, earning the policy a moniker in CNBC’s headline that would later become the subject of the article’s title.

3. The W‑Turn: A More Nuanced Approach

The subsequent “W‑Turn” saw the Treasury adopt a tiered system that differentiated between “digital services” and “technology infrastructure.” Under the new regime, Alphabet would face a 20 % tax on revenue generated from paid services such as Google Cloud, while a lower 15 % rate would apply to non‑paid content and advertising revenue.

This W‑Turn also introduced a “dilution rule” designed to prevent Alphabet from shifting profits to its Hong Kong or Singapore affiliates. The rule required a proportional tax payment on profits that were earned in the UK but reported abroad.

Analysts welcomed the W‑Turn as a “step toward fairness,” but cautionary voices—most notably from the International Tax Review—pointed out that the rule’s enforcement would be challenging, and that Alphabet could still exploit “thin capitalization” via inter‑company loans.

The W‑Turn represented a compromise between the UK’s fiscal objectives and the need to keep the country attractive to tech investment. The policy was rolled out in phases, with an initial compliance window of 18 months.

4. The Doughnut: Circular Taxation to Close Loopholes

By late 2025, the UK announced its most radical change yet: the “Doughnut” framework. The term, coined by CNBC’s author in the article, describes a tax policy that closes the “holes” left by earlier reforms.

The Doughnut framework introduced:

1. A “core tax” of 25 % on all digital services, regardless of jurisdiction.
2. A “circle” of compliance requirements that forced Alphabet to report detailed intra‑company pricing for all transactions between its UK and non‑UK entities.
3. An “inner ring” of audit and penalty provisions that would trigger a 30 % penalty on any profits not reported in the UK tax year, coupled with an interest rate of 5 % per annum.

In addition, the Doughnut framework included a “doughnut‑hole” clause that imposed an extra 10 % tax on profits generated in low‑tax jurisdictions but used to fund UK‑based operations, thereby preventing Alphabet from simply moving its income out of the UK while still benefitting from its UK operations.

According to CNBC’s reporting, the Doughnut framework was a direct response to a wave of high‑profile cases in the United States where tech giants used complex ownership structures to avoid US taxation. The UK’s move was hailed by the HMRC as a “circular solution that will bring the UK to the forefront of global tax fairness.”

5. Reactions and Implications

The article reports a wide range of reactions:

• Alphabet’s spokesperson said the company would “review its compliance strategy” but warned that the Doughnut framework could create “significant administrative burden.”
• Chancellor Hunt defended the move as necessary, stating that “the UK will continue to lead the fight against profit shifting.”
• International tax experts lauded the Doughnut for its innovative approach but cautioned that “other jurisdictions might copy this model and create a new form of tax fragmentation.”
• UK tech startups expressed concern that the new regime could raise costs and potentially slow down investment.

The article concludes with a forward‑looking analysis: the Doughnut framework could force a global re‑evaluation of digital taxation, especially as the OECD continues to negotiate a global minimum tax. The “tango”—with its series of U‑, W‑ and Doughnut‑turns—highlights how quickly policy can evolve in the tech tax arena and underscores the importance for multinational firms to maintain agile tax planning strategies.

6. Final Thoughts

CNBC’s piece offers an in‑depth look at the UK’s “tax tango” and the complexities of taxing digital services in an increasingly interconnected world. By following the policy shifts from a hasty U‑Turn to a more measured W‑Turn, and finally to a sophisticated Doughnut approach, the article shows how governments can experiment, adapt, and ultimately design a tax regime that aims to balance fairness with economic competitiveness. For Alphabet, the road ahead will be paved with compliance challenges, but for the UK, the move signals a bold statement that the country is willing to “dance” with global tech giants on its own fiscal terms.