Ross Clark Ross Clark

Will the G7 tax deal survive?

What are the chances of the G7’s agreement on a minimum rate of corporation tax actually coming into effect? While it was presented as a done deal last weekend, things are not going too well. Firstly, the G20 will have to agree — which is far from guaranteed given that smaller countries have less to gain from the proposal than the US. It is a tax designed to help countries with a large number of multinational companies who currently operate through subsidiaries in countries with lower corporation tax rates. While no G20 country currently has a rate below the agreed 15 per cent, (and the biggest loser, Ireland, with its 12.5 per cent corporation tax rate, is not in the G20), several countries might feel threatened — such as Saudi Arabia (20 per cent) and Indonesia (22 per cent).

It doesn’t help that one of the big tech companies whose revenues the tax was designed to capture, Amazon, appears to be exempt from some of the provisions. The idea is that 20 per cent of any profits made by companies — in excess of a profit margin of 10 per cent — would be distributed among countries where the company does business. Yet Amazon currently has a profit margin of less than 7 per cent and so would not be affected. Surely other multinationals will be able to find some way of re-engineering their profit margins so that they, too, can avoid the tax. Compared with the digital services taxes that it is supposed to replace, a minimum corporation tax looks like a slithery beast.

Biden’s proposals have to gain a two-thirds majority in the Senate

Its ability to capture revenue is a horse-trading compromise that is only just beginning. The Chancellor, Rishi Sunak, is reported to be lobbying for financial services to be excluded — which for many people will undermine the whole purpose of the tax.

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