Crackdown on companies
G7 ministers agree 15% tax deal amid warning
Rishi Sunak: ‘seismic reforms’ (pic: HM treasury)
Huge multi-nationals, such as Amazon, Facebook and Google, will be forced to pay taxes at a minimum rate of 15% following a historic agreement by G7 finance ministers.
The companies will pay levies on sales in the country in which they are earned, as well as where they have headquarters.
Chancellor Rishi Sunak said: “These seismic tax reforms are something the UK has been pushing for and a huge prize for the British taxpayer – creating a fairer tax system fit for the 21st century.
“This is a truly historic agreement and I’m proud the G7 has shown collective leadership at this crucial time in our global economic recovery.”
Germany’s Olaf Scholz said the agreement will “change the world” as a means to raise extra revenue post-Covid after a drop in tax receipts and massive hikes in borrowing.
The move aims to stop companies who book profits in jurisdictions where they pay little or no tax and narrow their advantage over domestic players.
In a statement the G7 said: “We will provide for appropriate coordination between the application of the new international tax rules and the removal of all Digital Services Taxes, and other relevant similar measures, on all companies.”
Only large companies with profit margins of at least 10% will be affected. A total of 20% of any profit above the 10% margin will be reallocated.
The UK had the G7’s lowest corporate tax rate at 19 per cent, while Ireland, which has long gained an advantage from its 12.5% corporation tax rate, is being urged to come on board.
US President Joe Biden has been pushing for a global rate of 15% “at least”.
Bruno Le Maire, the French finance minister, said the agreement would build unstoppable momentum to implement lasting tax reforms.
Following the G7 meetings in London, negotiations to reform the global tax system will take place at a wider G20 meeting in Venice next month.
It would then progress to negotiations at the Organisation for Economic Co-operation and Development in Paris between 135 countries with the aim of a deal being agreed in October.
Rain Newton-Smith, CBI chief economist, said: “Finding agreement on international tax at the G7 is no mean feat and will light the touchpaper for the wider multilateral process at the OECD.
However, experts have raised concerns that Amazon may escape paying significantly more tax in some of its biggest markets unless world leaders close a large loophole in a historic global deal.
“Consensus on corporation tax means that a real sense of momentum can now build ahead of the G20 later in the year, helping to pave the way forward for an international tax system that is simpler, more sustainable and easier to comply with.
“Businesses have worked hard with the OECD in recent years to move the process forward and will continue to do so to achieve a global tax system fit for the 21st century.”
Rachel Reeves, Labour’s Shadow Chancellor, said: “It’s encouraging to see these first moves towards a global pact on tax avoidance.
“But this government has spent the last few weeks actively watering down what was initially intended to be an ambitious 21% rate of global minimum corporate tax.
“That would have brought £131 million extra a week to Britain for our NHS and other public services, while also stopping our high streets being aggressively undercut.
“This government must now show leadership, push for a 21% rate in negotiations, and use the money to fund our schools and our NHS.”
UPDATE 6 JUNE: Experts have raised concerns that Amazon may escape paying significantly more tax in some of its biggest markets unless world leaders close a large loophole in a historic global deal.
Amazon made a profit margin in 2020 of only 6.3% because it operates as two businesses – Amazon web services, which has a high profit margin, and the Amazon retail business which operates on very thin margins.
Commentators have expressed concern that other big companies may follow this model to get around the rules.