“Historic” G7 deal to end global corporate tax avoidance welcomed by technology giants Google and Facebook | News from the UK
Google and Facebook have welcomed a G7 deal to tackle corporate tax avoidance by big tech companies.
The agreement provides for a global minimum corporate income tax of at least 15% – lower than the lower limit of 21% discussed by President Biden – and changes as to which countries will benefit from it.
Chancellor Rishi Sunak called the deal “a proud moment”.
After two days of talks in London, he added that “the right companies are paying the right taxes in the right places”.
The changes would ensure that large companies, especially those with a strong online presence, pay taxes in the countries in which they operate, rather than just where they are headquartered.
Rich nations have struggled for years to find a way to generate more revenue from large multinational corporations like Google, Amazon, and Facebook, which often make profits in jurisdictions where they pay little or no tax.
Following the announcement, Nick Clegg, Facebook’s vice president of global affairs, said, “We want the international tax reform process to be successful, and we recognize that this could mean Facebook is paying more taxes elsewhere.”
Facebook has long called for global tax reform and we applaud the important progress made in the G7. Today’s agreement is an important first step towards corporate security and increasing public confidence in the global tax system.
– Nick Clegg (@nickclegg) June 5, 2021
A Google spokesman said the company strongly supports the initiative and hopes for a “balanced and lasting” agreement.
Sky Economics and Data Editor Ed Conway said, “This is about preventing billions, if not trillions, of tax avoidance by the world’s largest companies.
“Right now, taxes are mostly based on profits, but you can move those profits much more easily than your sales.”
Companies with a profit margin of over 10% would receive an additional tax portion which is then reallocated to different countries around the world based on sales.
“It’s just as, if not more important than the global minimum,” added Conway.
“When you put these two things together, you have perhaps the most compelling attempt to deal internationally with what’s going on with the tech giants and their tax payments.
“The work to achieve this will take a few years, if not decades.
“On the other hand, it’s easy to be skeptical and the rate – 15% – is much lower than originally expected. Originally, 21% was planned, so the target is less ambitious.”
A Treasury Department spokeswoman said the most profitable multinationals pay taxes in the countries where they operate, not just where they are headquartered.
“The fairer system will mean the UK will collect more tax revenue from large multinationals and help pay for public services here in the UK,” she said.
Mr. Sunak said there had been “great strides” on an issue that had been debated for nearly a decade.
The agreement is now to be examined more closely at the meeting of G20 finance ministers and central bank governors in July.
The deal is likely to create tension with Ireland as it has so far been unwilling to raise its corporate tax rate above 12.5%.
Ireland’s Finance Minister Paschal Donohoe tweeted: “I take note of the joint position of the # G7 Finance Ministers on international corporate taxation. It is in everyone’s interest to reach a sustainable, ambitious and fair agreement on the international tax architecture.
“I am now looking forward to taking part in the discussions at @OECD. There are 139 countries around the table and any agreement must meet the needs of small and large countries, developed and developing countries.”
Meanwhile, Labor called on the government to push for more than the base rate of 15% after US President Joe Biden originally called for a minimum of 21%, which the party said would raise £ 131 million for public services.
“This government must now show leadership, push for a 21 percent rate in negotiations and use the money to fund our schools and our NHS,” said Shadow Chancellor Rachel Reeves.
The Adam Smith Institute – a free market think tank – said the chancellor effectively tied his hands “handing over control of our taxes to Washington’s demands”.
“These proposals are not in the UK’s interest and Rishi has sold the UK short,” said Deputy Director Matt Kilcoyne.
“Rishi Sunak’s flagship policy of super deductions and free ports is dead in the water. The Chancellor’s own policy, which is undone by his own hubris.”