UK: Global tax deal must ensure that big techs pay their fair share

UK finance officials have been cautious accepting US proposals on a global corporate tax rate, insisting that tech firms should pay their share locally

The UK has said that any global agreement on minimum corporate tax rate must ensure that digital businesses pay their fair share, reflecting their economic activities.

"Our consistent position has been that it matters where tax is paid and any agreement must ensure digital businesses pay tax in the UK that reflects their economic activities," a British finance ministry official told Reuters.

"We welcome the US's renewed commitment to tackling the issue and agree that minimum taxes might help to ensure businesses pay tax - as long as they are part of that package approach," the official added.

The statement came just a day before a virtual meeting of finance ministers from the Group of Seven (G7).

Big technology companies like Apple and Google are facing increased scrutiny worldwide over their tax practices. These firms are accused of using a variety of accounting tricks, such as booking profit in low-tax countries like Ireland and Luxembourg, to lower their tax burdens.

As a result, a number of countries have devised their own taxes on digital firms in the absence of a global agreement, to curb what is widely regarded as tax avoidance.

The trend has also triggered the Organisation for Economic Cooperation and Development (OECD) to advocate for the need to pursue a tax reform that would force multinational companies to pay tax in countries where they serve customers, regardless of where their income is eventually funnelled.

On Monday, the Financial Times reported that G7 countries are close to an agreement on minimum corporate tax, after progress was made among senior officials.

Last week, US officials proposed that the profits of multinational firms should be taxed at an effective rate of 15 per cent, rather than an initial proposal of 21 per cent, in order to make it more appealing internationally.

Germany supported the proposal and Daniele Franco, the finance minister of Italy, also said that the prospects for a global agreement were "now concrete".

However, Britain has been more cautious about the US proposal, and is putting more weight on the location of the tax payments. According to Reuters, finance minister Rishi Sunak wants large tech firms with overseas headquarters to pay more tax in the UK.

The G7 does not have any official role in the global taxation deal process, but its members do make a powerful bloc in other international forums.

G7 finance ministers are due to meet in person in London on the 4th and 5th June, where the core elements of an agreement may be reached.

French finance minister Bruno Le Maire said on Thursday that a consensus among G7 nations on a single tax rate will "give a strong push" to reach a deal at the G20 in Venice in mid-July.

If the finance ministers reach a consensus, G7 leaders could formally sign it off and present their plan to the OECD for discussion under the inclusive framework.

"It's very complex to know how to tax a multinational," Apple CEO Tim Cook said earlier this year, during an awards ceremony in Dublin.

"I think logically everybody knows it needs to be overhauled, I would certainly be the last person to say that the current system or the past system was the perfect system," he added.