The UK is the only G7 country not to have supported a minimum global corporate tax rate that would reduce incentives for multinationals, including tech companies like Google, Apple and Amazon, to shift profits towards tax havens.
Momentum for reform is building after US President Joe Biden backed a 15% rate that could earn governments billions of dollars a year.
The level is lower than the 21 per cent that had been mentioned, but the UK has yet to express its support. Tory MPs voted on Monday against an amendment tabled by Labor that would have given UK support for the plan.
The Prime Minister’s spokesperson would only say that the government welcomed “the renewed commitment of the United States to find a solution”.
He added: “It is essential that any deal ensures that digital businesses pay UK taxes that reflect their economic activities.”
the Financial Times reported Monday that the G7 could seal a pact as early as Friday that would spur action on a global standard.
Negotiations on this standard are managed by the OECD, but have been blocked on several occasions. Nearly 140 countries hope to reach an agreement on tax evasion by this summer.
G7 countries backing Biden’s corporate tax proposals
G7 countries that don’t
The Tories have a choice: back UK companies that pay their fair share or leave tax-dodging tech giants again.
– Anneliese Dodds @ (@AnnelieseDodds) May 24, 2021
Paul Monaghan, director of Fair Tax Mark, a program that certifies organizations that pay “the right amount” of tax, said agreeing on the proposals would be a “great time” for tax justice.
“This would see most of the incentives that underpin the shifting of profits to tax havens removed, and the largest multinationals would be taxed not only on where affiliate profits are accounted for, but where the real economic value is. is derivative, ”he said.
“To date, the UK government has been lukewarm at best and seemed determined to steer discussions into more minor areas, such as a stronger tax on digital services.
“We may be on the cusp of a once in a generation moment, but the UK needs to step up and engage in a much more positive way with the agenda – the benefits to public services here and in developing countries. development could be immense. ”
What are the proposals?
Joe Biden and Vice President Kamala Harris originally proposed a 21% minimum corporate income tax plan. For comparison, the UK rate is currently 19 percent after years of cuts. The OECD rich country club average is 20.6%.
The Biden administration has also signaled its commitment to ensuring that profits are taxed where they are actually made, rather than where a company’s accountants decide to record them.
This would end cases like Apple selling most of its iPhones from Ireland (on paper) where it pays a profit rate of less than 1%. Other “tax planning” techniques include sending an “intellectual property” invoice from a subsidiary located in a tax haven to a subsidiary in a high tax country.
This allows multinationals to easily shift their profits out of countries whose governments want to take a share of the profits to pay for the public services that businesses rely on.
What advantage could they have?
According to the UK-based Tax Justice Network (TJN), the earlier proposal for a 21% tax rate would have brought in $ 640 billion a year globally. If the 15 percent rate would obviously yield less, it would put an end to some of the most egregious examples of profit shifting and, hopefully, end the race to the bottom on taxation.
TJN calls for a mechanism to ensure that the poorest countries receive a fair share of the benefits of a global deal.
Developing countries are the hardest hit by the effects of tax evasion, while richer countries, including the UK, are the main enablers.
Could a tax increase hurt businesses?
It is difficult to argue that a rate of 15 percent – still lower than that of most countries in the world – would be detrimental.
Business groups have for years lobbied for lower tax rates and have largely achieved their wish. Corporate income taxes have been falling for decades, in part because of a flawed theory that lower rates mean higher real tax taking for governments. The UK government pushed this line until it recently admitted that a higher rate increased income.
Tax rates have been reduced in part due to ‘tax competition’ otherwise known as race to the bottom which has been spurred on by countries like Ireland, the Netherlands and the UK network of overseas territories.
While this has long been a controversial issue, soaring public spending has tightened scrutiny of tax havens as government ministers seek ways to generate additional revenue.