World Bank among calls for restraint on global pandemic tax
The head of the World Bank has warned world leaders against setting a global minimum tax rate for companies that is too high, and other industry experts have also called for restraint.
David Malpass, World Bank president, said in a BBC interview he did not want to see new rules that would hinder poor countries' ability to attract investment.
The 21% global minimum rate called for by US Treasury Secretary Janet Yellen "strikes me as...high", he added.
A short term solidarity tax is a bold idea and in many ways the spirit of the IMF's statement, the intentions and motivations behind it are hard to fault."
Yellen has argued for all countries agree to a minimum tax rate of 21%, while president Joe Biden wants the US to set the rate higher at 28%.
The UK is also looking to raise taxes on corporations from 19%, up to 25% in 2023, in what would be the first increase since the 1970s.
The Organisation for Economic Co-operation and Development (OECD) had focused on a minimum corporate rate of 12.5% in earlier talks.
This call follows the International Monetary Fund proposing temporary tax hikes on corporations that prospered during the pandemic or the wealthy as a means to cover the cost of the coronavirus crisis and support more disadvantaged people.
Adam Dunnett, director of international fund services group Zedra, said: "A short term solidarity tax is a bold idea and in many ways the spirit of the IMF's statement, the intentions and motivations behind it are hard to fault.
"The difficulty comes in the details. Who would be asked to pay the tax and on what amount? The main target for this sort of taxation is, of course, the US based ‘FAANG' companies who are already being targeted outside the US through various digital service tax proposals and laws.
He added: "A solidarity tax charge on those businesses would probably be popular globally but faces two obstacles; the US administration is likely to have objections and will repeat some of the arguments it has used in response to digital services taxation."
Dunnett also pointed out a second obstacle, namely that taxes on these types of popular consumer businesses are often passed on to the customer quickly.
"There is a chance that a one-time tax charge on these sorts of businesses could end up being paid by the people it is intended to benefit. A solidarity tax applied to a broader number of taxpayers, maybe entire industries or all businesses that experienced profits increases over a certain amount, could be expensive to implement and enforce."
"Investors and businesses crave stability after a bonkers twelve months, and introducing an expected tax charge raises the prospect of more uncertainty, which governments are keen to avoid", he said.
While George Bull, senior tax partner, RSM, in its weekly tax briefing note said that in an increasingly digitised world it is possible for globalised corporations to reduce or eliminate their tax liabilities on corporate profits by using sophisticated international structures.
"The winners are the corporations and their stakeholders. While "losers" and "winners" are relative concepts, some countries definitely feel that they are suffering reduced tax yields because of this.
"The base-erosion and profit-shifting (otherwise known as BEPS) used to achieve this take many forms. Over the last 20 years, BEPS has reached unprecedented levels. In 2013 the OECD began a project to combat this and has achieved many successes. Nevertheless, taxing the digital economy remains inherently difficult."
Bull added: "With the IMF and World Bank Spring meeting in Washington later this month, followed by the UK chairing the G7 meeting in Cornwall in June, and then the October G20 summit in Rome, there will be abundant opportunities for international debate and agreement. If the UK chancellor's calculations are correct, his decisions about business rates reform and a possible online sales tax - difficult enough as they are - could well be made against a background of less frenzied international debate."
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