By Michael Jarvis, London UK
When G7 finance ministers meet in London the focus of their deliberations will be of huge interest to Cayman’s financial services sector.
At issue is a proposal by the US Biden administration for a global corporation tax initially floated at a “floor rate” of 15 per cent but which could go higher according to US Treasury officials.
President Biden had initially indicated a minimum global rate of 21%.
But that’s at odds with the British government’s own approach to the matter.
UK Chancellor of the Exchequer (Minister of Finance) Rishi Sunak is pursuing a policy to increase the British corporation tax rate from 19% to 25% for large companies by 2023.
Some other countries, especially those which rely on major global corporations offshoring to lower tax jurisdictions, oppose the plan.
The Biden strategy for a 21 per cent rate is favoured by France and Germany, considerably lower than the preferred 12.5 per cent that the Organisation for Economic Cooperation and Development (OECD) is pushing for.
President Biden has made reforming the global corporate tax system a policy priority vowing to challenge large corporations which he claims circumvent their country’s tax systems by shifting their profits to low-tax jurisdictions.
Despite their differences over the structure of the proposed tax, the US and UK along with other G7 nations share a common focus. They want to target multinational companies, especially those in the tech industry, to pay “a fairer share of tax” in the countries where they generate most of their sales and have their head offices.
A report in the UK’s Guardian newspaper quoted officials in the UK’s finance ministry as saying that “reaching an international agreement on how large digital companies are taxed “is a priority” and that "we welcome the renewed commitment by the US 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,” a finance ministry official stated.
Considered as the biggest reform to the global taxation system in a century, the G7 finance ministers are said to be close to reaching agreement on a minimum global corporate tax rate.
G7 Finance Ministers will meet in London on the 4th and 5th of June ahead of the summit of G7 leaders from June 11th to 13th in Cornwall, UK.
The UK currently holds the rotating presidency of the G7 and has listed working to reach a global solution to the tax challenges created by the digitalisation of the economy as one of the four priorities that it is pursuing.
The others are; protecting jobs and supporting the global economic recovery, helping our global economies reach their net-zero targets, and providing necessary support for the world’s most vulnerable countries.
The G7 nations are the United Kingdom, Canada, France, Germany, Italy, Japan and the United States.