Asked by
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.
(Con)
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.
[V]
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?
(Con)
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.
(Lab)
[V]
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—
(Con)
Can the noble Lord please put his question?
(Lab)
[V]
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?
(Con)
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.
(Con)
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?
(Con)
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.
(LD)
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?
(Con)
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.
(CB) [V]
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?
(Con)
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.
(Con)
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?
(Con)
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.
(Lab)
My Lords, I recognise that the Minister does not feel she is able
to offer an estimate of the amount of additional tax, but could
she at least give us an indication of when the additional tax
might arise?
(Con)
My Lords, that is also subject to ongoing negotiations, including
at the G20 next month. I assure the noble Lord that the digital
services tax is intended to stay in place until we have
implemented the new international agreement, not just agreed it
in principle, so those revenues will continue to flow.
(Con)
My Lords, could my noble friend answer the question that was put
previously: is it not the case that the US is the main
beneficiary in tax revenues from this? Could she deal with the
point about Amazon? She says she cannot deal with particular
individual taxpayers, but the whole point of this measure is to
deal with Amazon, which is destroying retail businesses across
the country because they have to pay rates. On the digital
service tax, could she confirm that Amazon reacted to it by
simply passing on the 2% to its third-party retailers, and that
there was no disadvantage to it at all? As my noble friend Lord
Leigh has pointed out, Amazon would not be covered by this
measure. How can you enter into a deal without knowing the detail
in advance?
(Con)
My Lords, as I have said, a lot of the detail is still being
worked out. However, I reassure my noble friend on a number of
fronts. As part of the work on the detail of the agreement, we
are considering how pillar 1 will apply to groups that might have
different business lines, some of which may fall within the
criteria and others outside them. I would say to both my noble
friends, as indeed I did, that the agreement is designed to
address specific concerns about digital companies, or companies
that do not have physical presences in the countries where they
have activities. We are doing other work to address concerns
around online retailers; for example, I mentioned the fundamental
review of business rates that the Government are currently
undertaking.
(Lab)
My Lords, as the Minister has said, these are very early days.
From the information that she has given us today in reply to very
specific questions, we are not sure whether we have a framework
that is good, bad or indifferent. It is a bit like the curate’s
egg: it is good in parts. Could she give us some idea of when the
discussions will be sufficiently refined so that Chancellors of
the Exchequer in national countries can begin to consider the
income stream that they have to assist with their own domestic
problems of fixing a budget?
(Con)
My Lords, perhaps I can clear up some ambiguity. The Government
view the agreement that we have reached this week as completely
good and in the interests not just of developed countries but of
developing countries. It is a significant agreement. It is the
first time that there has been G7 alignment on the core
parameters of a two-pillar solution to this issue. It sets out
the scope and effect of pillar 1, a minimum rate of corporation
tax across the world and the application of that minimum rate on
a country-by-country basis. So there is a level of detail but
there is more work to do. As I have said, the next stage of that
work is in July at the meeting of the G20.
(Con) [V]
My noble friend has rightly said that the next stage is that G20
meeting. What assessment have Ministers made, and what assessment
was made at the discussions last weekend, of the likelihood of
countries outside the G7 agreeing to these plans without some
changes having to be made?
(Con)
My Lords, we recognise that this represents the basis of a
potential agreement and compromise between different countries,
but obviously it is important that those countries have their say
and their voice in the process. The fact that this is the first
time the G7 have been aligned behind a set of parameters provides
important momentum but there is more work to do.
(Lab)
My Lords, I assume the Government did some economic modelling
before entering into this agreement and making a written promise
to abandon the digital sales tax upon the implementation of
pillar 1. If so, when will the Government publish the details of
their modelling so far so that we can examine their policy in
detail?
(Con)
My Lords, the digital sales tax was always intended to be a
transitional approach. The UK Government’s preferred solution has
always been an international agreement. We are only part of the
way through negotiating that but the agreement reached at the
weekend represents important progress.
(Con)
My Lords, if tobacco taxes discourage smoking and carbon taxes
discourage pollution, what do business taxes do?
(Con)
My Lords, a global minimum rate of 15% will protect against
multinational tax avoidance while leaving appropriate room for
countries to use corporation tax as a lever to support their
economic, fiscal and environmental objectives.
(Con) [V]
My Lords, given that there is more work to do to agree the
details of this tax agreement, it is only right to remove the
digital services tax once the new agreement is finalised and in
place.
(Con)
My Lords, I can reassure a number of noble Lords that the noble
Lord is correct that we will be removing the digital services tax
only once we have full agreement and a plan for the
implementation of a new international system. That is the
position of the UK and it is supported by several other countries
in the negotiations, such as France and Canada.
