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G7 plan will slash UK tax revenue from US tech firms, say experts

G7 plan will slash UK tax revenue from US tech firms, say experts

Global changes could mean Treasury loses £230m from Google, Amazon, Facebook and eBay
Experts have warned that US tech companies, including Google, Amazon and Facebook, could pay less tax in the UK and several other big economies under global reforms agreed at the weekend by the G7.

In a key stumbling block emerging days after the landmark deal, research from the TaxWatch campaign group indicates that the UK Treasury stands to lose about £230m from the taxes paid each year by four of the big US tech firms.

The study estimates that Facebook, Google, eBay, and Amazon, contribute about £330m between them to the UK’s digital services tax – a levy on internet search providers, online marketplaces and social media firms. The tax was launched last year as a stopgap measure until a global deal could be reached.

TaxWatch said the UK tax bills paid by these firms would fall to just over £100m under the G7 plan.

The campaign group calculated the sum by analysing the UK accounts of each company for 2019, the most recent year when data was available. Although precise details of the global tax changes are still being negotiated and limited information has been published so far, the group estimated tax liabilities based on details in the G7 communique published last weekend.

According to the research, Google is estimated to contribute £219m to the digital services tax but would pay just £60m to the UK exchequer under the G7 plan.

For Facebook the tax take would fall from £58m to £28m. For Amazon it would drop from £50m to £10m, and for eBay from £19m to £3.8m.

The figures are estimates because the Treasury does not publish a breakdown of the amount each firm contributes to its digital services tax.

A Treasury spokesperson said the final details of the rules still needed to be worked through, and that the impact on tax revenues would be assessed by the independent Office for Budget Responsibility.

“The historic global tax agreement backed by G7 finance ministers reforms the global tax system to make it fit for the global digital age, achieving a level playing field for all types of companies. The deal makes sure that the system is fair, so that the right companies pay the right tax in the right places,” he added.

Sources close to the talks said the UK and EU nations were continuing to push for more in tax to be raised within their borders by large US tech companies. It comes ahead of the next key moment for tax reforms, at a meeting of the G20 in Venice in July.

Chris Sanger, global government and risk tax leader at the accountancy firm EY, said: “The UK will not want to turn off the taxing of those global multinationals, under the digital services tax, until it feels it has another tax that can deliver equally or better. There is still a lot of detail to be worked through in this space.”

At the heart of the issue are the two “pillars” in the G7 deal: one enables countries to tax large company profits based on their sales in that market, and a second sets a minimum global corporation tax rate. The global minimum would be set at a rate of at least 15% and capture thousands of firms and be paid in their home countries.

Because so many multinationals have their headquarters in the US, other nations are demanding that the largest companies also pay tax in nations where they generate their revenues. So under pillar one, the UK should receive a portion of the tax generated in the country by Apple and Facebook.

A mechanism for redistributing the profits of the largest companies is under discussion. A list of 100 companies whose profits could be divvied up in this way was presented at the G7. The list remains confidential, though is understood to include tech companies, but not banks or extractive firms such as mining and oil groups.

The redistribution mechanism would apply to companies with “superprofits” – profit margins exceeding 10% of revenues.

Although experts believe pillar one redistribution would generate relatively little for the UK, the Treasury would still gain an estimated £7.9bn each year from the global minimum rate under pillar two. This is because the global minimum tax is paid to a firm’s home country, and the UK has several large multinationals on its shores that would be caught.

Analysts at the EU Tax Observatory have suggested firms such as BT, Barclays, HSBC and BP, could be caught up in the pillar two arrangement.

Sources close to the tax reforms, which are being negotiated between 139 countries at the Organisation for Economic Co-operation and Development (OECD), said the UK and EU finance ministries were pushing for tougher concessions from Washington to raise more in tax from large US companies outside their home jurisdiction.

The Biden administration has however focused minds by threatening to impose punitive tariffs on imports from the UK and five other countries in retaliation for digital services taxes recently imposed on US corporations.

Tax campaigners warned that lower-income countries, which do not have multinationals based on their shores to benefit from a global minimum tax, would not stand to gain much from the limited amount of tax to be raised from pillar one. This could become a key sticking point at wider G20 talks in Venice next month.

George Turner, director of TaxWatch, said: “It seems to me this is a good deal for the US, they get to tax their multinationals more, and they get to protect themselves from companies trying to [go] offshore by making it a global deal.

“The fact Facebook and Google end up paying less tax in the UK under this deal is controversial, I don’t think you can get away from that. It wasn’t the aim of the whole game.”
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