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Wednesday, Jun 23, 2021

Thinktank urges UK government to back Biden’s global tax plan

Thinktank urges UK government to back Biden’s global tax plan

Proposal for 21% minimum corporate rate would generate additional £14.7bn for Britain, says IPPR
The UK would reap an extra £14.7bn annually by adopting Joe Biden’s proposal for a new global minimum corporation tax rate of 21%, according to a major thinktank.

The Institute for Public Policy Research (IPPR) Centre for Economic Justice has urged the government to embrace and push for the US president’s proposals at the forthcoming G7 summit, arguing that the global system would both be fairer and allow the UK to raise billions in vital revenue.

Biden has set out plans, based on long-gestating proposals by the Organisation for Economic Cooperation and Development, to force the world’s biggest multinationals to pay taxes to national governments based on the sales the companies generate in each country, and to establish a global minimum rate, to deter firms from shifting profits abroad and to reduce international undercutting on tax.

The US initially proposed a minimum global corporate tax rate of 21%, but has since signalled it could accept a 15% minimum.

Five of the other nations in the G7 have already indicated that they will back the proposals, but the UK has yet to do so – despite the chancellor having set out plans in this year’s budget to raise the UK’s corporation tax rate from 19% to 25% by 2023.

The IPPR argues that the UK, while hosting the G7 meeting in Cornwall this month, could take an opportunity for global leadership by backing a new global minimum rate of 21%, and help define a new consensus on fair and transparent taxation and investment, to aid a post-pandemic recovery.

It calculates that a global minimum of 21% corporation tax would generate increased UK tax receipts of £14.7bn, sufficient to fund the rebuilding of the NHS and care system (which the IPPR recently costed at £12bn). The alternative proposal for a 15% rate would only raise approximately half as much – about £7.9bn – and would retain “the race to the bottom on tax”, it says.

While opponents have argued that the minimum rate would undermine national sovereignty, the IPPR argues that the UK’s sovereignty is more affected by companies that are able to avoid taxation by shifting their profits to offshore havens. The Biden plan includes proposals to ensure firms cannot move profits to a country with a lower tax rate.

Companies that pay full taxes in the UK would not face higher bills either, given the new UK corporation tax rate. Instead, the IPPR says, it would prevent multinational firms from offshoring their profits to tax havens, in an unfair advantage over companies operating solely in the UK.

George Dibb, the head of the IPPR Centre for Economic Justice, said the UK government, as hosts of the G7 meeting, could shape the global economic consensus, but warned: “The window of opportunity may be narrow. Failure to reach consensus has held these negotiations up for years, until the new US administration kickstarted the process again. The UK should not miss the opportunity to seize global leadership on the issue.”

Carsten Jung, a senior economist at the IPPR, said: “For years, big businesses all around the world have avoided taxes, to the tune of $500bn per year, at the expense of all those domestic businesses that do pay their fair taxes. Fixing this will restore the level playing field for all UK businesses, and it will address one of the big economic injustices of our time.”

A Treasury spokesperson said that the government could back minimum tax rates, but as part of the proposed package under discussion at the OECD. “Reaching an international agreement on how large digital companies are taxed has been a priority for the chancellor since he took office.

“Our consistent position has been that it matters where tax is paid and any agreement must ensure digital businesses pay tax in the UK that reflects their economic activities.

“We welcome the US’s renewed commitment to tackling the issue and agree that minimum taxes might help to ensure businesses pay tax – as long as they are part of that package approach.”

G7 finance ministers are due to meet in London this week. According to Reuters, a draft communique shows they will pledge in July to reach an “ambitious” deal on a minimum global corporate tax.
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