17/05/21

UK: Officials not sold on Biden’s global 21pc tax plan.

As published on independent.ie, Monday 17 May, 2021.

British officials aren’t convinced by President Joe Biden’s plan for a global minimum business tax rate of 21pc, according to a person familiar with the matter.

Chancellor of the Exchequer Rishi Sunak and his team are concerned that the US proposal for a rate of 21pc may be too high over the long term, even though the UK intends to raise corporation tax to 25pc in 2023 to repair public finances after the pandemic.

Britain wants the US and other nations to focus instead on measures to make big multinational companies, especially digital giants such as Amazon, pay more of their tax in countries where they operate, said the person, who asked not to be identified because the discussions are sensitive.

Talks are under way over the policies. The Organisation for Economic Cooperation and Development (OECD), which is running the negotiations, is aiming for a deal by summer.

While an official in charge of the talks said this month that progress is being made and that the 139 nations taking part could settle on a rate close to 21pc, British scepticism could potentially delay any agreement.

The UK is due to co-ordinate further discussions among Group of Seven allies, when finance ministers meet in London next month.

Working on “a global solution to the tax challenges created by digitalisation of the economy” is on the agenda for the June 4-5 gathering.

Ireland’s long-established 12.5pc corporation tax rate has been instrumental in attracting foreign direct investment to the country. The government here has concerns that a 21pc rate will deter future investment.

Finance Minister Paschal Donohoe has argued that small countries such as Ireland should have the ability to use tax rates to compensate for the smaller scale of their economies. However, he acknowledged recently that the impact of a standardised tax rate on smaller economies is not of much concern to large ones.

“It’s up to us to make the case for tax competition within certain parameters as a legitimate policy response to the disadvantages of size or location,” Mr Donohoe told the Oireachtas recently.

The UK hasn’t rejected Mr Biden’s plan and is watching to see whether his proposal for a rate at 21pc is just an opening gambit, and how far opposition in Washington may force him to water it down, said the person.

While Mr Sunak is planning a higher rate in the years ahead, he will want the flexibility to cut it again potentially below the 21pc level as a Conservative who favours low taxes, the person said.

Mr Sunak also wants a global deal and said in March he believes one is within reach while European Union officials have also expressed optimism about the plan.

On Saturday, the Financial Times quoted UK Treasury official Mike Williams as saying a deal that considered a global minimum tax rate only wouldn’t be acceptable to the UK.

“The core UK proposition is that we’ve got to solve the digital tax issue, which we’ve been working on for years,” said Mr Williams at a conference. “It’s not primarily about a minimum tax,” he said. “Minimum taxes might help... to ensure businesses pay tax, but it matters as well where tax is paid.” (Bloomberg)