G7 plan to cut UK tax revenues for US tech companies, experts say | G7
Experts have warned that U.S. tech companies, including Google, Amazon and Facebook, could pay lower taxes in the UK and several other major economies as part of global reforms agreed to by the G7 over the weekend.
In a key stumbling block emerging days after the landmark deal, research by campaign group TaxWatch indicates the UK Treasury stands to lose around Â£ 230million in taxes paid each year by four of America’s big tech companies.
The study estimates that Facebook, Google, eBay and Amazon alone contribute around Â£ 330million to the UK digital services tax, a tax on internet search providers, online marketplaces and businesses. social media. The tax was launched last year as an interim measure until a global deal can be reached.
TaxWatch said UK tax bills paid by these companies would drop to just over Â£ 100million as part of the G7 plan.
The campaign group calculated the sum by analyzing each company’s UK accounts for 2019, the most recent year for which data was available. While precise details of global tax changes are still being negotiated and limited information has been released so far, the group has estimated tax obligations based on details from the G7 statement released over the weekend. latest.
According to research, Google is contributing Â£ 219million to the digital services tax, but paying just Â£ 60million to the UK Treasury as part of the G7 plan.
For Facebook, taxes would drop from Â£ 58million to Â£ 28million. For Amazon, it would drop from Â£ 50 million to Â£ 10 million and for eBay from Â£ 19 to 3.8 million.
The numbers are estimates because the Treasury does not publish a breakdown of how much each company contributes to its digital services tax.
A spokesperson for the Treasury said the final details of the rules have yet to be worked out and the impact on tax revenue will be assessed by the independent Office of Fiscal Accountability.
âThe landmark global tax deal backed by G7 finance ministers reforms the global tax system to adapt to the global digital age, creating a level playing field for all types of businesses. The deal ensures that the system is fair, so the right businesses pay the right taxes in the right places, âhe added.
Sources close to the talks said countries in the UK and the EU continued to push for big US tech companies to raise taxes within their borders. It precedes the next key moment in tax reforms, at a G20 meeting in Venice in July.
Chris Sanger, head of global government and risk taxation at the accounting firm EY, said: âThe UK will not want to turn off the taxation of these global multinationals, as part of the digital services tax. , until he feels he has another fee that can deliver the same. or better. There is still a lot of detail to work on in this space.
At the heart of the problem are the two “pillars” of the G7 agreement: one allows countries to tax the profits of large companies on the basis of their sales in that market, and the second sets a tax rate. global minimum on companies. The overall minimum would be set at a rate of at least 15% and would capture thousands of businesses and be paid in their home country.
Because so many multinationals are headquartered in the United States, other countries require that larger companies also pay taxes in the countries where they generate their income. So in the first pillar, the UK should receive part of the tax generated in the country by Apple and Facebook.
A mechanism for redistributing the profits of the largest companies is under discussion. A list of 100 companies whose profits could be distributed in this way was presented to the G7. The list remains confidential, although it includes technology companies, but not banks or extractive companies such as mining and oil groups.
The redistribution mechanism would apply to companies with âsuperprofitsâ – profit margins exceeding 10% of revenues.
Although experts believe the first pillar redistribution would generate relatively little for the UK, the Treasury would still earn around Â£ 7.9bn annually from the world’s second pillar minimum rate. This is because the global minimum tax is paid to a company’s home country and the UK has several large multinationals on its shores that would be taken.
Analysts from the EU Tax Observatory have suggested that companies such as BT, Barclays, HSBC and BP could be involved in the second pillar deal.
Sources familiar with tax reforms, which are being negotiated among 139 countries at the Organization for Economic Co-operation and Development (OECD), said the UK and EU finance ministries were pushing for stricter concessions from Washington to raise taxes for the great United States. companies outside their home jurisdiction.
The Biden administration, however, has concentrated minds in threatens to impose punitive tariffs on imports from the UK and five other countries in retaliation for recent digital services taxes imposed on US businesses.
Tax activists have warned that low-income countries, which do not have multinationals based on their coasts to benefit from a global minimum tax, will not gain much from the limited amount of tax to be raised from the first pillar. This could become a key sticking point in the broader G20 talks in Venice next month.
George Turner, Director of TaxWatch, said: âIt seems to me that this is a good deal for the United States, they can tax their multinationals more and they can protect themselves from companies that are trying to [go] offshore by making it a global deal.
âThe fact that Facebook and Google end up paying less tax in the UK under this deal is controversial, I don’t think you can get away with it. It was not the goal of the whole game.