To ask Her Majesty’s Government, further to the announcement of the G7 global tax agreement on 5 June, whether tech companies will pay more tax in the United Kingdom after the proposed removal of unilateral digital services taxes.
My Lords, the reforms agreed by the G7 countries include a global minimum tax of at least 15% and changes to profit allocation rules that mean large digital companies will pay more tax in countries where their customers are located, including the UK. The detailed design of the new rules is still under consideration, so it would be premature to provide revenue estimates. When the rules are implemented, the revenue impact will be formally assessed and certified by the OBR.
I congratulate the Chancellor and the Government on reaching this landmark agreement. It is a positive step towards a global level playing field and an end to the unjust practice of offshoring. While this is a welcome starting point, does the Minister agree with the Chancellor’s assessment that this is a fair deal, given that the proposal now outlined clearly favours high-income countries at the expense of lower-income ones? Would it not be fairer for the Government to pursue a path on which additional tax revenues are distributed without preference being given to the countries in which multinationals are headquartered?
I thank the right reverend Prelate for his words of welcome. This is indeed a significant agreement. I disagree with his assessment of what has been agreed so far. It will benefit all countries, including lower-income countries. As he will know, this is not the end of the process. A key part of this process so far and going forward is the OECD inclusive framework, which means that less economically developed countries have an equal voice in the final agreement to those that are more economically developed.
My Lords, the global tax agreement is to be welcomed, despite inevitably leaving some unanswered questions. As we know, the agreement was struck among the G7—generally the most sophisticated and prosperous of Governments, with more developed tax systems. The tax avoidance industry has yet to be put loose on the detailed proposals to see how resilient they are. Concerns have already been expressed about a loophole being identified, with minimum tax applying only to profits exceeding a margin, and different business models—
I am sorry. The question is: so far as further implementation is concerned, what support will be given by the sophisticated economies to the less sophisticated, which might struggle with some of this?
My Lords, as I just said to the right reverend Prelate, the UK robustly supports the BEPS initiative being taken forward by the OECD’s inclusive framework group, which includes more than 100 jurisdictions and ensures that less economically developed countries have an equal say in developing international solutions. I assure the noble Lord that the UK Government also put resources into developing countries to help them to build the tax resources they need, so that they can ensure the effective enforcement of rules and collection of taxation.
My Lords, a lot of the attention has been on the minimum tax rate announced as part of the agreement—I hope the Government will not be tempted to go above the 15%—but more important than the rate is what will be taxed. Does the Minister agree that the UK must not allow global rules to override our freedoms to incentivise investment through things such as freeports and super-deductions?
I reassure my noble friend that the UK Government’s freeports will not be affected by this announcement. Freeports are not about corporation tax directly but are designed to support a wide range of businesses with a wide range of tax offers focused on local regeneration, such as full relief from SDLT, enhanced capital and building allowances, business rates relief and NICs relief.
My Lords, does the Minister agree that the US has used its might and played a blinder? Countries such as the UK will of course see increases in tax revenues under the new global corporate tax schemes, but the overwhelming winner is the US Treasury. Could a better system to benefit the UK—and indeed many other countries, including developing countries—have been devised?
My Lords, I am afraid I again disagree. The agreement we have reached, although only at a G7 level, is hugely significant and represents progress on work that started five years ago on this initiative but a lot longer ago under other initiatives. A key part of that work for the UK has been the inclusion of both pillars of this agreement. That is something the US had not always signed up to and is a key shift in its position from previous negotiations.
The initiative of President Biden, supported by the G7, is very warmly to be welcomed, but a number of potential loopholes have already been exposed—for example, that this tax would not apply to profits below 10%, when it is perfectly possible for companies to manipulate their figures so that in particular countries their profits are below 10%. Are the Government committed to closing off all those loopholes, so that these big corporations really do pay their fair share of the tax?
My Lords, I emphasise again that the G7 agreement was a really important milestone in progressing this international work on tax. It is only the first step towards that agreement, and there is much more detail to be worked on. The next step will take place at the G20 next month, when more details will be discussed with a wider range of countries.
I will pick up on the point made by the noble and right reverend Lord, Lord Harries. While we all welcome the progress made, does my noble friend not agree that companies, such as Amazon in particular, will generate less than a 10% margin, mainly due to their monopolistic position, therefore avoiding the tax? Would it therefore not be sensible to retain the digital services tax and beef it up so that the tax cannot be passed on to suppliers, as is currently the case, and more importantly so that profits made on goods sold outside the marketplace are also fairly taxed?
My Lords, I cannot comment on individual companies. As part of the further work we are doing, we are considering how pillar 1 will apply to groups that have different activities and business lines, some of which may meet the scoping criteria and some of which may not. Pillar 1 is designed to respond to concerns around international tax rules not adequately dealing with digital businesses generating profits in countries where they do not have physical presences. Online sales businesses are not necessarily within that. We recognise the concerns about tax treatment of online retailers; that is why we are doing other work across the tax system, such as the fundamental review of business rates. In the call for evidence we asked about the scope and potential impacts of an online sales tax, for example.