The UK withholds its support for a minimum global business tax for Joe Biden until the US accepts a fairer taxation system for the digital giants


Rishi Sunak blocks support for Joe Biden’s plans for a lower global business tax rate of 21 per cent as Britain pays the US to ensure any deal includes a fairer system of taxation of digital giants.

The chancellor, who heads the G7 finance ministers, said he would consider imposing a global minimum tax only as part of a broader package, as Treasury officials fear Biden is intent on compelling tech firms to pay taxes “in California when they ought to be paid in the UK.”

Sunak has come under pressure from the Labor Party to endorse the US plan for a minimum global corporate tax rate of 21 percent. Lisa Nandy, the shadow foreign secretary, accused Britain of showing hesitation, not leadership.

But the chancellor’s allies argued that backing the Biden plan would be in the interest of Washington, which wants an early agreement on the global minimum tax rate, not least because the US president is also seeking to raise tax rates for domestic companies to 25-28 percent. .

British officials feared that the United States would not be willing to accept a sufficiently radical amendment of global tax rules – dating back to the 1920s – to reflect where the multinational corporations make their sales, rather than where the groups actually are.

The UK was also concerned that even if the Biden administration agreed to a global deal, it might falter in Congress, leaving the UK loud and dry.

Talks about renewing global taxes are taking place at the OECD and G20 level, and this issue is sure to come up when the G7 finance ministers meet in London on June 4.

Mike Williams, director of the Department of International Business and Taxation at the Treasury Department, said at an online conference of the Oxford University Business Tax Center that a deal that only looks at a global minimum tax is not politically acceptable.

He said: “The main suggestion in the UK is that we have to solve the problem of digital taxes, which we have been working on for years.”

Britain has introduced its own digital sales tax, which is expected to raise around £ 500m a year from major US tech companies by 2024-5.

“It’s not basically about a tax floor,” said Williams. “A minimum amount of taxes may help – as long as they work – to ensure that companies pay taxes, but it is also important where the taxes are paid.”

“In terms of providing schools for Coventry children, it is not actually very beneficial to pay more taxes in California when they have to be paid in the UK,” he added.

But Britain is ready to strike a deal that covers the two pillars of Biden’s global tax reform plan: a global digital tax and a minimum global tax rate for multinationals.

“It’s about finding a way to impose adequate and fair taxation on the big international digital companies,” the chancellor said at the CEO Summit in The Wall Street Journal last week. He has promised to abolish the digital sales tax in Britain if a multinational deal is agreed.

Sunak also said the lower corporate tax rate of 21 percent was “higher than in previous discussions,” but he is open to discussing this. Ireland is firmly opposed, which has a headline rate of 12.5 per cent. Sunak is set to raise the UK interest rate to 25 per cent in 2023.

Nandy said Biden’s initiative on a global minimum tax rate represents a historic opportunity. She is working with Rachel Reeves, a shadow counselor, to get Sonak to put the issue on the agenda for next month’s G7 leaders’ summit in Cornwall. “We have to avoid racing to the bottom,” she said.

Robert Palmer, UK Tax Justice Campaign Group Director, called on the UK to support the Biden plan, saying the current situation was “not a good view” for a government that has said it wants to tackle tax evasion.

While the deal on the table was “imperfect”, the global minimum corporate tax rate of 21 percent would be a “game changer” in preventing companies from paying “very low” tax rates, he said.

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