G7 leaders have struck an “historic agreement” to force internet giants to pay more tax, including in the UK, Rishi Sunak has announced.
The agreement will “make sure the right companies pay the right tax in the right places”, the Chancellor pledged.
The breakthrough – the result of a major push by US president Joe Biden – follows years of largely futile attempts to end massive tax avoidance by major tech firms.
Now they would be forced to pay a corporation tax rate of at least 15 per cent, allowing the rate to rise in future after Mr Biden originally proposed 21 per cent.
And, even more importantly, 20 per cent of the profits of around 100 of the biggest firms would be reallocated to the countries where sales have taken place.
The move is designed to end “offshoring”, where companies set up legal entities in low-tax companies – regardless of where their revenues are actually earned.
Mr Sunak said the agreement would tackle tax havens and tax-dodging digital companies, vowing: “We are going to level the playing field.”
Speaking after a meeting of G7 finance ministers in London, he said it would make the tax system “fit for the global digital age”, adding: “That’s a huge prize for British taxpayers.”
The euphoria is tempered by the reality that Mr Biden’s pitch of 21 per cent has been dropped. Only three developed countries – notably Ireland – have corporation tax rates below 15 per cent.
Also, only the G7 has currently reached agreement, ahead of a meeting of the larger G20 grouping which includes the likes of China and India.
Labour criticised the 15 per cent figure, accusing the government of “actively watering down” hopes for a more ambitious pact.
“That would have brought £131m extra a week to Britain for our NHS and other public services, while also stopping our high streets being aggressively undercut,” said Rachel Reeves, the shadow Chancellor.
Nevertheless, Mr Sunak hailed “a very proud moment” and praised fellow leaders’ “willingness to work together to seize this moment to reach a historic agreement that finally brings our global tax system into the 21st century”.
He defended the decision not to push for 21 per cent, telling Sky News: “First of all, the agreement reached here today says at least 15 per cent.
“And. secondly, it is worth taking a step back. This is something that has been talked about for almost a decade.”
The British public wanted to know “there is a level-playing field, whether people are operating in tax havens, or whether large, particularly online businesses, are able to not pay tax in the right places”.
“That’s what this agreement gives us the ability to do and it has been agreed among G7 colleagues and once we broaden it out and implement it globally, it is a huge prize for British taxpayers,” the Chancellor said.
