Treasury demands crackdown on US tech companies as price for supporting White House threshold.
Source - Daily Telegraph - 24/05/21
Ministers are refusing to back a global overhaul of corporation tax championed by Joe Biden unless the White House supports their demands to crack down on US tech titans.
President Biden is thought to have won round most major Western nations in his bid to impose a global minimum threshold for corporation tax, to prevent companies from sheltering profits offshore.
However, sources said that Britain has not yet given the proposal its backing because the Government is pushing for strict rules that specifically target Silicon Valley titans such as Google.
It is feared that if Whitehall backs the Biden minimum rate too soon, it will lose leverage for action on big tech.
The high-stakes gambit threatens ambitions to agree major changes to the international tax system ahead of next month’s G7 summit, to be hosted in Cornwall.
A Treasury source said: “A minimum tax that means tax is paid elsewhere that ought to be paid in the UK will not fund the UK’s schools and hospitals.
We're not going to rush to sign up without a proper, more detailed deal on where tech companies pay their tax, something that you're confident can be pushed through Congress.”
Experts at the Paris-based Organisation for Economic Cooperation and Development have been working for almost a decade on plans to establish a minimum corporate tax and force firms to pay more taxes in countries where they earn revenues.
A G7 agreement is seen as a crucial step towards a wider OECD deal, which could raise an extra $100bn (£71bn) in global revenues.
But the Treasury is hunting more assurances over the tax treatment of major US companies like Facebook, Amazon and Google.
A minimum threshold alone will not force tech firms to pay their fair share in Britain. Corporation tax is levied on profit, but many US giants do not book major profits in the UK even though they sell billions of pounds of goods and services here.
In 2019, Amazon paid less than £300m in UK taxes despite logging revenues of almost £14bn.
The issue is likely to top the agenda next week when US Treasury Secretary Janet Yellen flies into the UK for the G7 finance ministers’ meeting, marking her first overseas visit in the role.
The UK last April moved to introduce its own digital services tax on major tech companies - targeting sales, not profits - due to the lack of an OECD agreement, and is aiming to raise £400m a year.
The Treasury is concerned that if it agrees to a minimum corporation tax rate, the second “pillar” of the OECD reforms, it will lose negotiating leverage on the first “pillar” of taxing tech giants more fairly based on which countries they earn their money in.
In April, President Biden put forward proposals for the world’s 100 biggest firms with sales of $20bn or more to pay a share of taxes to countries based on where they sell goods, but has refused to countenance moves discriminating against American businesses.
The US has already compromised by agreeing that the proposed minimum rate can be set at 15pc instead of the 21pc it initially suggested.
A Treasury spokesman said: “Reaching an international agreement on how large digital companies are taxed is a priority for the Chancellor. We welcome the US’ renewed commitment to tackling the issue and agree that minimum taxes might help to ensure businesses pay tax.
“However, it also matters where the tax is paid and any agreement must ensure digital businesses pay tax in the UK that reflects their economic activities.”
Chris Sanger, head of tax at accountant EY, said: “What pillar one is about is profits being taxed in different places. That's why it is so political, because you're asking one government to basically accede taxing rights over its businesses to another country, based on where its customers are rather than where the intellectual property is.
“That's why the UK is saying, 'we want to pay for our schools and hospitals'. We don't want another government to be getting more tax from these companies. We want that money coming into our coffers, to pay for our people, because it is driven by our citizens.”
Julian Jessop, a fellow at the Institute of Economic Affairs, said the proposals to tax firms by where revenues were generated could turn into a “bureaucratic nightmare”.
He added: "If the global minimum tax rate is too high, it would undermine healthy tax competition between countries. If it is too low, it would not have any significant impact anyway.”
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