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G7 agrees to curb multinational tax avoidance

G7 taxing the tech giants


The Imprudent Accountant hails a major breakthrough on global taxation, but is concerned that Britain may lose out.

7th Jun 2021
Partner An unnamed firm
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My immediate reaction to the news that the G7 nations were following President Biden’s lead and launching an all-out attack on tax avoidance by large multinationals was surprise that it had taken so long.

To start with, we should elaborate on some limited media reporting by pointing out that isn’t just tech organisations, but around 100 of the largest global groups that are likely to be in the firing line.

Donald Trump misses out

One reason for the prevailing disbelief was that the American president’s predecessor, Donald Trump, understood greed like few other leaders in the civilised world. When I hear news stories suggesting that the United States will benefit to the tune of untold billions as a direct consequence of the proposed change, I wonder why the now silenced man with the bad hairpiece didn’t propose it himself.

Initial plan

Step one is so simple. By imposing a minimum corporation tax rate, originally proposed that 21% but subsequently watered down to 15%, you significantly reduce the benefits that tax havens can offer.

That is very bad news for British dependencies such as the Cayman Islands and Virgin Island, while it will also potentially stop the Irish economy in its tracks.

As a quid pro quo, most other developed countries are likely to benefit considerably from taxing some of the profits of major organisations operating within their territory but paying little or no tax.

The horror story

If anyone is in any doubt about why this is necessary the following story is Highly Informative. As reported by the BBC, The Guardian appears to have discovered a tale about Irish-resident Microsoft Round Island One, a Bermuda-resident company that “Paid Zero Corporation Tax on £220 Million Profit”.

Even those who believe that tax avoidance is a good thing might stop to wonder after reading that.

In addition, the old saw regarding contributions via employment taxes doesn’t apply here, since this company had no employees.

Implications for UK

On the face of it, every country should benefit from an overall increase in taxes on corporates who appear to think that they are more important than many nation states and are certainly more powerful than some.

However, it is the global superpowers that will really make money from this initial proposal and, despite the rhetoric from our own government, the UK is no longer an Arsenal or Tottenham looking to succeed in Europe but has now relegated itself to a mid-grade second level team in terms of influence. Think Luton Town or Preston North End.

As a result, if the G20 pick up the corporation tax project without accompanying changes, we won’t do as well out of it as the serious players, particularly the United States.

Second step

One desired outcome for those with serious influence (ie the good old USA) is the elimination of our Digital Services Tax, which brings in at least a modicum of tax revenues from those that are fast becoming regarded as the forces of evil, at least when it comes to tax.

That may not be too much of a problem provided that in association with the minimum corporation tax rate, the G20 and other countries around the world agree that some form of local taxation of profits is brought into the mix.

In that way, every time that we shop at Amazon or use Google, the UK Exchequer will make some money.

This second part of the plan involves the calculation of tax charges based on profits in individual countries but currently appears to be vague and open to amendment. There have also been suggestions that it could let Amazon off the hook, which would be a major failure.

The impact on us

If these changes are ever implemented, then they are likely to have two opposing consequences for the average taxpayer.

First, once the multinationals are contributing to the UK balance of payments on a more reasonable basis, there should be more money to go around. We can either have better services, lower taxes or, just think of it, both at the same time.

On the other hand, anyone who is an Amazon addict will pay more for a least some of the goods that they buy.

The impact on the profession

I have absolutely no idea about the extent to which the Big Four in the United Kingdom get rich on the back of tax avoidance schemes helping those top 100 companies to siphon profits out of our country and into tax havens, but my suspicion is that the fees are significant.

Therefore, if President Biden has his way and then accedes to the requests of his fellow leaders to introduce some form of local tax based on revenues, this could be very bad news for partners at our biggest firms.

Then again, it will probably only be a matter of time before they come up with ways to get around whatever new legislation is implemented. That might be difficult with the global minimum 15% corporation tax but if profits have to be allocated across the globe, some clever accountant is going to find a way of ensuring that a large proportion is generated in Guernsey or Mustique.

The future

I can’t wait to watch a battle of Star Wars dimensions between the multinationals that believe they are above the law and the countries that want to impose those laws. There could be years of fun ahead before this story is finally put to bed and who knows, we may even live happily ever after.

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07th Jun 2021 17:00

There will be a fair few countries who do not sign up, what happens to them, will it be sanctions or invasion?

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