Rishi Sunak is holding back support for Joe Biden’s plans for a 21 per cent minimum global business tax rate, as Britain pushes the US to ensure any agreement includes a fairer system for taxing digital technology giants.
The chancellor, who chairs the G7 finance ministers, said he would consider a global minimum levy only as part of a broader package, with Treasury officials fearing Biden is intent on compelling tech firms to pay tax “in California when it ought to be paid in the UK”.
Sunak has come under pressure from Labour to endorse the US plan for a 21 per cent global minimum corporation tax rate. Lisa Nandy, shadow foreign secretary, charged that Britain was showing hesitancy, not leadership.
But the chancellor’s allies argued that backing Biden’s plan would play into the hands of Washington, which wants an early agreement on a global minimum tax rate, not least because the US president is also seeking to raise domestic corporation tax rates to 25-28 per cent.
British officials feared that the US would be unwilling to accept a sufficiently radical shake-up of global tax rules — which date back to the 1920s — to reflect where multinationals make their sales, rather than where the groups have a physical presence.
The UK was also concerned that even if the Biden administration approved a global deal, it could still falter in Congress, leaving the UK high and dry.
Talks on a revamp of global taxation are taking place at the OECD and G20 levels, and the issue is certain to come up when G7 finance ministers meet in London on June 4.
Speaking at an online conference for Oxford university’s Centre for Business Taxation, Mike Williams, the Treasury’s director of business and international tax, said a deal that only looked at a global minimum tax was not politically acceptable.
“The core UK proposition is that we’ve got to solve the digital tax issue, which we’ve been working on for years,” he said.
Britain has introduced its own digital sales tax, which is expected to raise about £500m per year from big US tech companies by 2024-5.
“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.”
“In terms of providing schools for the children of Coventry, it is not actually tremendously helpful if more tax is paid in California when it ought to be paid in the UK,” he added.
But Britain is ready to do a deal that covers both pillars of Biden’s plan to overhaul global taxation: a global digital tax and the minimum global tax rate for multinationals.
The chancellor told a Wall Street Journal CEO summit last week that the digital tax was the UK’s priority: “It’s about finding a way of appropriately and fairly taxing large international digital companies.” He has promised to scrap Britain’s digital sales tax if a multinational deal is agreed.
Sunak also said a 21 per cent minimum corporate tax rate was “higher than where previous discussions were”, but that he was open to discussing it. Ireland, with a headline 12.5 per cent rate, is fiercely opposed; Sunak is set to raise the UK rate to 25 per cent in 2023.
Nandy said the Biden initiative on a minimum global tax rate represented a historic opportunity. She is working with Rachel Reeves, the shadow chancellor, to push Sunak to put the issue on the agenda of next month’s G7 leaders summit in Cornwall. “We have to avoid a race to the bottom,” she said.
Robert Palmer, director of campaign group Tax Justice UK, called on the UK to back Biden’s plan, saying the current position was “not a good look” for a government that has said it wants to tackle tax avoidance.
While the deal on the table was “not perfect”, a global minimum corporate tax rate of 21 per cent would be a “game-changer” in stopping companies from paying “ultra-low” tax rates, he said.