Economy UK’s Sunak says world is watching as G7 debates tax reform

UK’s Sunak says world is watching as G7 debates tax reform

Britain said the world was relying on a gathering of some of the richest nations to agree reforms to outdated global tax rules, as finance ministers from the Group of Seven started a two-day meeting in London on Friday.

The gathering, chaired by British finance minister Rishi Sunak, is the first time the ministers have met face-to-face since the start of the coronavirus pandemic.

Rich nations have struggled for years to agree a way to raise more tax from large multinational companies such as Google, Facebook and Amazon, which often book profits in jurisdictions where they pay little or no tax.

U.S. President Joe Biden’s willingness to raise taxes on large businesses now creates more chance of an international consensus than under his predecessor Donald Trump, and a need to repair COVID-hit public finances makes it more pressing.

“We cannot continue to rely on a tax system that was largely designed in the 1920s,” Sunak said as he opened the meeting. “And I will just say this: the world has noticed. And I believe they have high expectations for what we all can agree over the coming days.”

He has stressed the importance of meeting face-to-face with fellow ministers from the United States, Japan, Germany, France, Italy and Canada. Britain’s government is hosting the event in Lancaster House, an ornate 19th-century mansion almost next door to Buckingham Palace.

“You need to be round a table, openly, candidly talking through things,” Sunak told Reuters in an interview this week. read more .

Due to COVID restrictions, ministerial delegations have been cut down and there are fewer travelling journalists. Seating plans have been redesigned with the help of public health officials, and Sunak greeted leaders by bumping elbows, not shaking hands.

But the bigger challenge remains reaching an agreement on tax reform which could then be presented to a broader group of countries, the G20, at a summit in Venice in July.

In a joint letter on Friday, finance ministers from Germany, France, Spain and Italy wrote that they would “commit to defining a common position on a new international tax system at the G7 Finance Ministers meeting in London”.

“We are confident it will create the momentum needed to reach a global agreement,” they added.

However, Japan’s finance minister Taro Aso said on Monday that he did not expect agreement this week on a specific minimum tax rate. 

The U.S. Treasury expects a fuller agreement to come when Biden and other heads of government meet at a secluded beach resort in southwest England on June 11-13. 

MINIMUM 15% RATE

The United States has proposed a minimum global corporate tax rate of at least 15%. If a company paid tax somewhere with a lower rate, it would probably have to pay top-up taxes.

Biden had been planning to raise the U.S. domestic corporate tax rate to as high as 28%. But on Thursday he proposed a tax floor of 15% in a bid to gain support from Republicans for new spending measures. 

But just as important for Britain and many other countries is that companies pay more tax where they make their sales — not just where they book profits, or locate their headquarters.

The United States wants an end to the digital services taxes which Britain, France and Italy have levied, and which it views as unfairly targeting U.S. tech giants for tax practices that European companies also use.

British, Italian and Spanish fashion, cosmetics and luxury goods exports to the United States will be among those facing new 25% tariffs later this year if there is no compromise. 

The U.S. has proposed levying the new global minimum tax only on the world’s 100 largest and most profitable companies.

Britain, Germany and France are open to this approach but want to ensure companies such as Amazon – which has lower profit margins than other tech firms – do not escape the net.

European Union Commissioner Paolo Gentiloni, who is also attending the G7 meeting, said progress had been made in the run-up to the meeting.

“We are working at the OECD level to have reallocation of taxing rights for ‘giants’ including digital giants, and I think this is a on a very good track,” he told CNBC

Daniel Bunn, an expert on global taxation at Washington’s Tax Foundation think tank, said these proposals were likely to lead to more complex regulation.

“A lot of those rules are going to be, I think, politically based rather than principles-based,” he said.