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Treasury holds fire on support for Biden's global tax plan

·3 min read
Sunak
Sunak

The Chancellor is holding fire on supporting plans from US President Joe Biden for a 21pc minimum global business rate amid efforts to press for an international tax on technology giants.

Rishi Sunak is said to be willing to consider the measure as long as the US does not try to shut down measures to tax overseas technology giants in the UK, the Financial Times reported.

Last year, the UK introduced a digital sales tax that it hoped will raise £500m a year. The levy is placed on sales of online advertising and digital marketplaces by large technology firms and is regarded by Washington as a punitive tax on its successful Silicon Valley firms.

Discussions over taxing global tech giants continue at an OECD level and are likely to be a key talking point at the upcoming G7 summit. The Treasury said a fair digital tax remained “crucial” to any agreement.

Top Treasury officials have given a cool reception to US calls for a minimum tax.

Mike Williams, the Treasury’s director of international tax, told an online conference this week: “The core UK proposition is that we’ve got to solve the digital tax issue, which we’ve been working on for years.

“It’s not primarily about a minimum tax. Minimum taxes might help - so long as they work - to ensure businesses pay tax, but it matters as well where the tax is paid.

“It is not actually tremendously helpful if more tax is paid in California when it ought to be paid in the UK.”

However, Mr Sunak told a Wall Street Journal conference last week that he was open to discussing the 21pc minimum tax, although it was “higher than where previous discussions were”.

Britain is set to raise the UK rate of corporation tax to 25pc by 2023.

Mr Biden's minimum rate would allow the US to raise taxes on businesses, from 21pc to 28pc, without being undercut. The proposals also call for taxes to be paid based on local sales.

Lower tax nations, such as Ireland where the headline corporation tax rate is 12.5pc, are firmly against the US proposals. Yet a global minimum tax would help crack down on ultra-low tax havens and encourage more companies not to book profits overseas. The Labour Party has called on the government to support the Democrat President's plans.

After international talks stalled, the UK unilaterally introduced a its tax on tech giants last year. The Treasury has promised to scrap the UK’s digital services tax if an international approach can be agreed.

The US, however, argues the taxes discriminate against American companies and in April threatened retaliatory tariffs on certain products with taxes of up to 25pc.

A Treasury spokesman said: “The UK has been proactive in pressing for an international solution to the tax challenges posed by digitalisation of the economy for a number of years. And the Chancellor has made it a key priority of the UK’s G7 presidency.

“We welcome the US administration's renewed commitment to reaching a solution to these challenges through the OECD. It’s also crucial that any agreement includes changes to ensure digital businesses pay tax in the UK that reflects their economic activities.”