Seek exemption from G7 tax compromise that threatens fragile U.S. leadership
Corporate tax experts warned that with the intensification of technical negotiations, countries’ “special requests” to exclude industries from the G7-supported corporate tax agreement may undermine the final agreement.
The compromise reached at the G7 last weekend concealed remaining differences between countries on the outline of the agreement. however, British lobbying efforts The exemption from financial services underscores the threat to other parts of the agreement, even if London’s request is justified.
The question of where the largest multinational companies pay corporate taxes is the most difficult part of the proposal.
Known as “pillar one,” it requires a global agreement between countries to allow the use of an agreed formula to transfer the profits of some of its resident companies to another country.
The United Kingdom, France, Italy, and other countries want more taxes from the US technology giants and other large global companies to reflect the businesses that these companies conduct in their territories.
But the UK is worried that if the financial sector is included, it may fail. According to officials close to the negotiations, it wants to exclude financial services.
Heather Self, the corporate tax partner of the accounting firm Blick Rothenberg in the UK, said: “If financial services are included in the first pillar, the UK may become a net loser because we are a large exporter of financial services.
“Every country is working hard to ensure that they become winners, but they cannot all be winners, and there will be losers.”
She said she expects to see more “special demands” from countries that are worried about transferring taxation power to other jurisdictions.
The demand for the divestiture of financial services stems from the original OECD plan, which exempts the industry because it “from… activities that occur within the jurisdiction of a particular market [and] Taxes are usually levied where the market is located”. Other countries with large financial institutions, such as France, have previously supported this special arrangement.
For the United States, which has hindered the first pillar of OECD negotiations under the Trump administration, it is difficult to even talk about redistributing profits.If a special exemption that seems to help other countries other than the United States is provided, the transaction will Congress faces greater difficulties Than it has already faced.
G7 did agree to some special treatments: Amazon’s large and profitable cloud business, Amazon Web Services, Will be included Even Amazon itself does not have the necessary 10% profit margin.
Other countries also generally agree with the US’s position that the original OECD plan is too complicated and has multiple exemptions for internal departments and business lines. Instead, they agreed to distribute a portion of the profits of the 100 largest companies in the world.
As the G20 and the OECD negotiate in the coming weeks, attempts to modify the cautious compromises promoted by the Biden administration-such as the UK’s bid for financial services-will need to maintain the integrity of this alliance to ensure that an agreement is finally reached.
OECD officials expressed optimism, suggesting that a broader agreement will be reached at the G20 meeting in Venice in July and the “inclusive framework” negotiations with more than 130 countries later this year.
German Finance Minister Olaf Scholz said on Wednesday: “The ministers and all OECD working groups have been discussing many technical issues, and we will continue to discuss these issues.”
But he expressed confidence in the political momentum behind the talks, adding that “with the first public commitment made in London, it is clear that we are moving in the right direction”.
Richard Milnes, EY UK banking tax partner, said that efforts to exclude financial services from the G7 agreement should not be seen as a concession. “It should also be noted that the concepts of’sales’ and’margin’ behind the G7 proposal are not easy to apply in the field of financial services,” he said.
But Michael Deverrow, a professor of business taxation at Oxford University’s Said School of Business, said that although the United Kingdom has good reasons for practical difficulties, its opposition to the inclusion of the City of London in the transaction is similar to American reservations. Regarding allowing the rest of the world to tax their tech giants.
Eventually, OECD officials will find a formula to make the transaction widely accepted.
U.S. Treasury Secretary Janet Yellen emphasized the importance of revenue to the U.S. in a letter She wrote Republican Senator Mike Crapo as seen by the Financial Times.
She said that the comprehensive scope of the new U.S. Pillar One proposal is “basically income-neutral to the U.S. because we will be at the receiving and giving end of the proposed redistribution of profits.”
Proving that the United States benefits from this part of the transaction will be the key to her belief that agreeing to it is in Washington’s interest.
Additional reporting by Guy Chazan in Berlin
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