The UK would rake in an additional £ 14.7bn a year by adopting Joe Biden’s proposal for a new 21% minimum global corporate tax rate, according to a leading think tank.
The Center for Economic Justice at the Institute for Public Policy Research (IPPR) urged the government to adopt and defend the US president’s proposals at the upcoming G7 summit, arguing that the global system would be both fairer and would allow the UK to raise billions in income.
Biden laid out plans, based on long-standing proposals from the Organization for Economic Co-operation and Development, to force the world’s largest multinationals to pay taxes to national governments based on the sales the companies generate in each country. , and to establish a global minimum. tax rate, to deter companies from shifting profits abroad and to reduce international tax undercutting.
The United States initially proposed a minimum global corporate tax rate of 21%, but has since indicated that it could accept a minimum of 15%.
Five of the other G7 countries have already indicated they will support the proposals, but the UK has yet to do so – although the Chancellor presented plans in this year’s budget to raise the tax rate UK companies from 19% to 25%. % by 2023.
The IPPR argues that the UK, while hosting the G7 meeting in Cornwall this month, could seize a global leadership opportunity by supporting a new global minimum rate of 21%, and help define a new consensus on fair and transparent taxation and investment, to help a post-pandemic recovery.
He calculates that an overall minimum of 21% corporate tax would generate an increase in UK tax revenue of £ 14.7 billion, sufficient to fund the rebuilding of the NHS and the care system (which the IPPR has recently costed at £ 12 billion). The alternative proposal of a 15% rate would increase only about half – around £ 7.9 billion – and maintain “the race to the bottom of the tax,” he says.
While opponents have argued that the minimum rate would undermine national sovereignty, the IPPR argues that UK 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 that companies cannot shift their profits to a country with a lower tax rate.
Companies that pay full UK tax would not face higher bills either, given the new UK corporate tax rate. Instead, according to the IPPR, it would prevent multinational companies from offshoring their profits to tax havens, in an unfair advantage over companies operating solely in the UK.
George Dibb, director of the IPPR Center for Economic Justice, said the UK government, as host of the G7 meeting, could shape the global economic consensus, but warned: “The window of opportunity may be narrow. . Failure to reach consensus delayed these negotiations for years, until the new US administration restarted the process. The UK should not miss the opportunity to take global leadership on the issue. “
Carsten Jung, Senior Economist at IPPR, said: “For years, large companies around the world have avoided taxes, to the tune of $ 500 billion a year, to the detriment of all domestic companies that pay their taxes. fair. Correcting this problem will restore a level playing field for all UK businesses and address one of the great economic injustices of our time. “
A spokesperson for the Treasury said the government could support minimum tax rates, but as part of the proposed package being discussed at the OECD. “Reaching an international agreement on the taxation of large digital companies has been a priority for the Chancellor since taking office.
“Our consistent position has been that it matters where tax is paid and any deal must ensure that digital businesses pay UK taxes that reflect their business activities.
“We welcome the renewed US commitment to tackle the problem and agree that minimum taxes could help ensure that businesses pay taxes – as long as they are part of this comprehensive approach.”
G7 finance ministers are due to meet in London this week. According to Reuters, a draft statement shows that they will commit in July to reaching an “ambitious” agreement on a minimum global corporate tax.