U.K.’s Sunak Isn’t Convinced on Biden’s Global Business Tax Plan
(Bloomberg) -- British officials aren’t convinced by President Joe Biden’s plan for a global minimum business tax rate of 21%, drawing accusations of “evasion and sophistry” from tax justice campaigners.
Chancellor of the Exchequer Rishi Sunak and his team are concerned the rate may be too high over the long term, even though the U.K. intends to raise its corporation tax to 25% in 2023 to repair public finances after the pandemic.
Britain wants the U.S. and other nations to focus instead on measures to make big multinational companies -- especially digital giants like Amazon.com Inc. -- pay more of their tax in countries where they operate.
Talks are under way over the policies. The Organization for Economic Cooperation and Development, which is running the negotiations, is aiming for a deal in the summer.
While an official in charge of the talks said this month that progress on a deal is being made, and that the 139 nations taking part could settle on a rate close to 21%, British skepticism could potentially delay any agreement.
Paul Monaghan, chief executive of the Fair Tax Foundation, said Britain was the “laggard” of the Group of Seven allies, adding that Sunak’s proposed higher headline rate of U.K. corporation tax was “an irrelevant distraction.”
“We’re talking about a minimum,” he said. “It would mean it wasn’t worth anyone’s time shifting profits to Ireland or the Cayman Islands.”
Britain’s Treasury said that finding an international solution to taxing the digital economy was a key priority for the U.K.
“We welcome the U.S. administration’s renewed commitment to reaching a solution to these challenges through the OECD,” a Treasury spokesperson said in a statement. “It’s also crucial that any agreement includes changes to ensure digital businesses pay tax in the U.K. that reflects their economic activities.”
The U.K is due to coordinate further discussions among G7 allies when finance ministers meet in London next month. Working on “a global solution to the tax challenges created by digitalization of the economy” is on the agenda for the June 4-5 gathering.
The U.K. hasn’t rejected Biden’s plan, though, and is watching to see whether his proposal for a rate at 21% is just an opening gambit, and how far opposition in Washington may force him to water it down, said a person familiar with the matter. While Sunak is planning a higher rate in the years ahead, he’ll want the flexibility to cut it again as a Conservative who favors low taxes, the person said.
Sunak said in March he believes a global tax deal is within reach, and European Union officials have also expressed optimism about the plan. Yet on Sunday, the Financial Times quoted Treasury official Mike Williams as saying a deal that considered a global minimum tax rate only wouldn’t be acceptable to the U.K.
“The core U.K. proposition is that we’ve got to solve the digital tax issue, which we’ve been working on for years,” Williams told a online conference hosted by Oxford University, according to the FT. “It’s not primarily about a minimum tax,” Williams said. “Minimum taxes might help -- so long as they work-- to ensure businesses pay tax, but it matters as well where tax is paid.”
Still, Monaghan described revenue from the U.K. digital services tax as “pennies at the back of the couch” compared to the profits of big tech companies such as Apple Inc. and Alphabet Inc.’s Google. “It would raise £500 million ($705 million) on a good year,” he said. “That’s a laughable tokenistic gesture.”
Economist Alex Cobham, chief executive of the Tax Justice Network, said the OECD had identified the U.K. as an obstacle to a global minimum business tax rate, given it was the only country to reject the organization’s analysis that the levy could be implemented without a treaty change.
He added that U.K. officials at some point would “have to go along with the international momentum” or admit “they’re resisting this because they don’t want multinationals to be taxed to the same extent that domestic businesses are.”
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