“Only two things in life are certain,” as the old saying goes: “Death and taxes.”
But of late it seems that taxes could be replaced by something else: headlines about Amazon (and other tech giants) not paying enough tax. Every year it seems to be the same: the companies make millions – if not billions – in profits, but pay less tax than a reasonably successful small business. In 2020, for example, Amazon had a sales income of €44bn (£37.7bn) in Europe but declared a loss of €1.2bn (£1.03bn) and therefore paid no corporation tax.
Could all that be about to change? There has long been talk of an international tax agreement to tackle abuse by the tech companies, and – while months and possibly years of talks are still needed – it moved a significant step closer after the recent G7 summit in Cornwall.
What did the G7 agree?
There was agreement on two principal points. First, that countries can tax the companies on revenue generated in that country rather than where the firm is located for tax purposes. So the UK Government could in theory tax Amazon on its UK revenue, despite the company being based in Luxembourg.
Secondly, the G7 committed to a global minimum tax rate of 15%. This was lower than the 21% suggested by President Biden, but the inclusion of “at least” in the G7 deal means the rate could be negotiated higher.
Which companies would it apply to?
The obvious targets are the tech giants but the plans for a global corporation tax rate could capture up to 8,000 multinationals, including oil giants like BP and Shell, and banks such as HSBC, Barclays and Santander.
How much would the tax raise?
The OECD estimated last October that tax revenues of $81bn (£58bn) could be raised by the proposals, with the Institute for Public Policy Research suggesting that the UK’s share (albeit from the 21% tax rate favoured by President Biden) could be up to £14.7bn annually.
Could the tax be avoided?
The simple answer is ‘yes.’ Countries such as Ireland, Hungary and Cyprus all have corporation taxes lower than 15% – but the G7 are hoping that their combined economic might will bring such countries into line, especially if the minimum rate is agreed with the G20, which includes China, Russia and India.
In theory, therefore, the deal appears both doable and likely to raise significant revenues. But like all international agreements, there will be a lot of talking and it won’t be done quickly. It will also need to gain regulatory approval in the relevant countries, giving ample time for delay and lobbying. Most experts believe that ultimately there will be some form of agreement – but don’t expect it to happen in the next 12 months.