10 June 2021

Bloomberg: Brexit Britain’s Bank Tax Pushback Is a Bad Look

Tax loopholes favoring Big Tech need to be closed, but not at the cost of opening new ones. Global tax reform is bringing the conflicted incentives of post-Brexit Britain out into the open.

When the Biden administration took the unprecedented step earlier this year of floating a global minimum business tax rate of 21%, U.K. Chancellor of the Exchequer Rishi Sunak and his team took a dim view. The Brits saw the rate as too high — despite Sunak’s own plans to lift U.K. corporation tax to 25% — and not geared toward getting tech firms such as Amazon.com Inc. to pay their fair share around the world.

Now that the G-7 has agreed to a 15% minimum rate and a new tax on multinational profits that gives countries a crack at collecting more, Sunak’s team still isn’t happy, according to the Financial Times. They want an exemption for financial services, including global banks with their head offices in London such as HSBC Holdings Plc. The U.K. will keep pushing its case as talks move to the G-20 level.

Banks weren’t intended to be the primary target of reforms designed to bring the global tax system into the digital age. Under earlier proposals, finance, along with airlines, energy companies and other industries, was supposed to be exempt, according to a French parliamentary report. On that basis, you could argue the U.K. might be trying to pull the bedcovers back a little from the Biden administration.

However this mixture of resistance and contradiction — or “evasion and sophistry,” as some tax campaigners have put it — is becoming a habit for the U.K. It’s not going to help build consensus around this tax deal beyond the G-7.

The specific worry here is less the existing tax rate of City of London firms — 19 out of 20 top Western European and U.S. financial companies paid an effective tax rate of above 15% in 2019, according to Bloomberg News — more who gets to tax them. By reallocating taxable profits to better align with where value is created, the U.K. could lose a slice of tax revenue....

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