Biden’s global business tax plan

President Joe Biden’s plan for a 21 per cent minimum global business tax rate has been met with resistance from the UK chancellor Rishi Sunak.  Though there is considerable opposition pressure on the chancellor to endorse the US plan, Sunak said he would consider a global minimum levy only as part of a broader package.

This stand-off takes place against the backdrop of the UK hosting a pivotal meeting between G7 leaders in Cornwall next month.  Though the plan is being negotiated between more than 130 nations and has met with approval from several key players, including France, Germany and Japan, the UK is pushing the US to ensure any agreement includes a fairer system for taxing digital technology giants.

The specifics may not be certain, but changes are coming and now is a good time to ensure you have access to the best advice for your international and domestic tax affairs.

Global Business Tax

Talks on a revamp of global taxation are taking place at the OECD and G20 levels, and the issue is likely to be central when G7 finance ministers meet in London in June 2021.  The proposed US plan is being sold as a way to curb tax avoidance by big companies and tech giants, however the details are still very much in flux.

The Biden administration initially proposed a rate of 21% but has since backtracked, saying instead it should be “at least” 15%, whilst adding that this would be a “floor” and that discussions should continue to push that rate higher.  Sunak has said a 21 per cent minimum corporate tax rate was “higher than where previous discussions were”, but that he was open to discussing it.

Domestic Tax

The domestic tax situation of each nation involved varies dramatically and has shaped international response.  Though many EU countries are behind the plan, Ireland, with a 12.5 per cent corporate tax rate, is fiercely opposed.  In the UK, the corporation tax rate is already set to rise to 25 per cent in 2023 and so the hesitancy to Back the plan is not so much around the number as the politics and geography.

There is a fear in the UK of being left ‘high and dry’ by the US.  Though a strong government majority in Westminster could pass the required legislation, UK ministers are concerned that Biden’s plan may falter in the US congress.  If it were to pass in the US, ministers are also concerned that the plan would ultimately benefit Washington, as the US president is also seeking to raise domestic corporation tax rates to 25-28 per cent.

International Tax

However, British officials’ greater worry is that the US would be unwilling to accept a sufficiently radical shake-up of global tax rules.  The UK believes that the current rules, which date back to the 1920s, need overhauling to reflect where multinationals make their sales, rather than where the groups have a physical presence.  Though minimum taxes may help to ensure businesses pay tax, what concerns the UK is where that tax is paid – especially regarding digital services.

The UK has played a leading role in reforming its tax system to tackle the rise of online companies, with the introduction of a digital services tax last year and is ready to do a deal that covers both a global digital tax and the minimum global tax rate for multinationals.  Sunak has also promised to scrap Britain’s digital sales tax if a multinational deal is agreed.  Though the Biden administration made a new offer that would pave the way for some large multinationals to pay taxes where sales are made, the UK does not believe it goes far enough.

International and Domestic Compliance

Changes to global business tax are on the horizon.  Whether the UK relents and accepts Biden’s plan, or the US accepts that an agreement must come as part of a package including a solution for the taxation of large multinational digital companies, international businesses need to prepare for change and adapt accordingly.

At Briars We are as comfortable advising on business taxes across the globe as we are with assisting on personal and employee tax affairs.  If a minimum global business tax rate comes into force, or businesses become liable for taxation where make their sales, rather than where they have a physical presence, or both, we can help ensure that your international business is compliant in all it’s tax affairs.

To minimize your tax risk and find peace of mind as the tax landscape continues to shift, please feel free to contact Briars.

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