In line with a plan put forward by US President Joe Biden being negotiated between more than 130 nations, a global minimum corporate tax rate would be set, ostensibly preventing multinational corporations from undercutting businesses and exploiting attractive, across-border low-tax locations, with the proposals gradually gathering support.
Keir Starmer has warned Boris Johnson that failure to support US President Joe Biden’s global minimum tax rate plan, touted as a means of cracking down on tax avoidance by multinational companies, could result in the government “risking billions of pounds” in revenue that could be “spent on our recovery”.
The Labour leader had fumed on Twitter over the decision of the Tories to vote against the opposition party’s proposals to support Biden’s proposals, underscoring that Britain was “the only G7 country not supporting it”.
Tonight the Conservatives voted against Labour’s proposals to support @JoeBiden‘s global minimum corporate tax on big multinationals.
We’re the only G7 country not supporting it.
Boris Johnson is risking billions of pounds in tax revenue that should be spent on our recovery.
— Keir Starmer (@Keir_Starmer) May 24, 2021
MPs voted 364 to 261 in favour of rejecting Labour’s amendment to the Finance Bill.
Labour’s amendment to the Bill would have forced Chancellor Rishi Sunak to publish a review on how the minimum tax rate would affect the taxpayer.
The US President has been advocating a 21 percent country by country tax rate on businesses, to prevent multinational corporations from shifting profits across borders to profit from the most attractive low-tax locations. The proclaimed goal of such a measure is purportedly to end what US Treasury Secretary Janet Yellen referred to in a speech earlier in April as “a 30-year race to the bottom on corporate tax rates.”
The Labour Party had forced the vote, extolling the proposal as a “chance for the UK to show leadership and ambition”, and as a means of “protecting the British high street”.
The opposition party had argued that the measure, if supported, would stop diverse big tech giants and other firms dodging British tax and undercutting local businesses. Ahead of the vote, Rachel Reeves, the shadow chancellor, claimed in a letter to the Chancellor the proposal was a “once-in-a-generation opportunity” to overhaul global tax rules.
“By making sure they pay their fair share in Britain, we can level the playing field for our brilliant businesses and build an economic recovery with thriving industries, strong public services and good, secure jobs for all.
However, now, Rishi Sunak will not “rush to sign” Biden’s proposal without a “detailed plan on where companies will pay their tax”, according to sources cited by The Telegraph.
Previously, Chancellor Rishi Sunak announced a plan to raise corporation tax from 19 to 25 percent for large companies by 2023. However, the Joe Biden proposed 21 per cent tax is “higher than where previous discussions were”, writes the outlet.
“Reaching an international agreement on how large digital companies are taxed is a priority for the Chancellor. However, it also matters where the tax is paid and any agreement must ensure digital businesses pay tax in the UK that reflects their economic activities,” a Treasury spokesperson was cited as saying, adding:
“We welcome the US’ renewed commitment to tackling the issue and agree that minimum taxes might help to ensure businesses pay tax. However, it also matters where the tax is paid and any agreement must ensure digital businesses pay tax in the UK that reflects their economic activities.”
Julian Jessop, a fellow at the Institute of Economic Affairs, was cited by the outlet as warning that if the global minimum tax is too high it could “undermine healthy tax competition. If it is too low, it would not have any significant impact anyway.”
Biden’s Tax Pitch
In April the Biden administration released its “Made in America” tax plan, containing an outline of its proposed changes to US corporate tax policies. These included a proposal to establish a global minimum tax rate on businesses.
The global minimum tax establishes a system in line with which a company from a specific country pays at least a certain percentage of its profits in taxes, regardless of where in the world those profits are being earned.
In any country that subscribes to a global minimum tax rate, a domestic company that seeks to move some of its operations to a low-tax locality across the borders would be required to pay its home country’s government the difference between that minimum rate and what the firm paid on its overseas earnings.
“Although countries have strong incentives to work together to counter tax competition, they will not stop the race to the bottom unless enough large economies adopt a minimum tax on foreign earnings,” the Biden administration had stated earlier in the year.
Some countries have enacted tax policies specifically aimed at attracting multinational business investment by lowering corporate tax rates. According to the Organisation for Economic Co-operation and Development (OECD), countries around the world lose out on an estimated $100 billion per year in tax revenue through “base erosion and profit shifting” maneuvers, known by the acronym BEPS.