Monday Morning Moan - Rule Britannia on digital services taxes? Joe Biden may beg to differ...

Profile picture for user slauchlan By Stuart Lauchlan June 7, 2021 Audio mode
Summary:
The UK is claiming credit for winning G7 agreement on a minimum tax rate for the digital economy. Peace in our time! (That worked out well last time...)

UK US

Hurrah! With one bound, the problem of taxing digital giants fairly has been solved and the likes of Facebook, Amazon and Apple are tamed once and for all!

Apparently.

Or at least that’s what the mainstream media has been telling me since late last week when, with the forthcoming G7 gathering in the UK looming, finance ministers have - it says in most newspapers - been whipped into line by the British version, Rishi Sunak, who’s (seemingly) near single-handedly got them to sign up to a minimum level of Corporation Tax of 15%.

And Chancellor Sunak is wasting no opportunity to big up this ‘triumph’, boasting:

I am delighted to announce that today, after years of discussion, G7 finance ministers have reached a historic agreement to reform the global tax system. To make it fit for the global digital age, but crucially to make sure that it is fair so that the right companies pay the right tax in the right places and that’s a huge prize for British taxpayers.

It’s great PR news for Sunak and the UK government as well, as Brexit Britain prepares to stage the G7 Summit in Cornwall. Prime Minister Boris Johnson will be hosting the likes of US President Joe Biden and soaking up all the ‘Global Britain’ photo opps he can. Sunak meanwhile has had to get in a bit early to make sure he gets his moment in the spotlight.

And he’s certainly getting help in that from his allies in the right-leaning media. The Express newspaper, that most Brexit-supporting of them all, breathlessly declares that (sic):

Rishi Sunak's 'seismic' tech tax deal proof Brexit Britain is world leader.

It goes on to pitch the line that:

It also emerged that the country’s unmatched “soft power” played a vital role in ending divisions over taxing tech firms, with foreign finance ministers and their officials wowed by ­having talks in Lancaster House, the London mansion where Netflix’s hit TV series The Crown is filmed.

Now, why did no-one think of that before? Years and years of dithering and self-interested posturing by countries keen to be seen to make progress on a bit of Amazon-baiting, without actually undermining their own tax havens and inward investment-friendly credentials, and all it took in the end to get an agreement in the end was a trip to see where Olivia Colman and Helena Bonham-Carter drank tea and ate cucumber sandwiches! Imagine if someone had just come up with the idea of a behind-the-scenes day trip to the James Bond set at Pinewood, we could have settled this thing years ago!

America (still) First

Flag-hugging drivel aside, a more serious issue is that this isn’t the tax deal that it’s being made out to be - nor is it a British triumph. It’s the Biden administration that was pushing hardest for this and it initially wanted a rate of 21%, something that the UK actively opposed. Pulling the rate back down to 15% has just served a few pragmatic political purposes.

It’s allowed the UK Government to claim that, given that this deal has been done to co-incide with the G7 meeting in Britain, it follows that it was indeed the Johnson government that forced the Americans to climb down from 21% and managed to broker the international consensus.

That’s about as likely a scenario as Le Royaume-Uni scoring more than null points in The Eurovision Song Contest and it’s a narrative that won’t survive once Airforce One touches down. Any doubts that Biden is about to allow anyone else to take credit for this can be safely dispelled by the opinion piece he ‘wrote’ for The Washington Post this weekend, headlined:

My trip to Europe is about America rallying the world’s democracies.

As diginomica has noted before, the Biden administration may be on the face of it more globalist in nature, and that’s a relief to many of us after four years of Trumpian dogma, but the idea that any administration in Washington isn’t going to act out of self-interest for its own people is naive in the extreme.

One of the problems with the new tax proposals is that while the idea is to remove incentive for multi-nationals to shift their profits abroad to save tax, the benefit of this goes to the country where the head office is located - and in the case of the global digital tech giants, that would be…No wonder Biden is keen.

And he’s not alone. Facebook’s Apologist-in-Chief Nick Clegg has given Sunak’s ‘triumph’ a big ‘Like’ - and frankly if that’s not enough to chill the Chancellor’s blood and send him back to his sums to see what’s he’s missed, I don’t know what is. Clegg says:

Facebook has long called for reform of the global tax rules and we welcome the important progress made at the G7. Today’s agreement is a significant first step towards certainty for businesses and strengthening public confidence in the global tax system. We want the international tax reform process to succeed and recognize this could mean Facebook paying more tax, and in different places.

Well, if Nick says, Zuck and Co are all in favour, then that’s all right by me. It’s clearly for the greater good of us all. Oh and by the way, with all that extra tax revenue we’re going to be generating, can I interest anyone in the idea of buying Sydney Harbour Bridge? I’ll do you a good rate!

Peace in our time

You know, holding in their hands a piece of paper that promises peace in our time has never been a great look for British politicians, but it’s understandable why Sunak - and inevitably PM Johnson  will join in - are doing so. Sunak inherited a big problem in the shape of the UK’s unilateral Digital Services Tax (DST), which went down about as well in Washington as a cup of cold sick. Under Trump it was seen as an attack on American firms; under Biden, that at least has not changed - and that's not helpful when you need to score a trade deal with Washington at just about any cost.

You may not have noticed, but the US Government last week slapped a pile of tariffs on goods and services from the UK in retaliation for the DST. It then suspended them minutes later, in order to help the Brits to have a think about what should happen next, rather in the way that the Mafia is keen to let you come to your own conclusions about what’s best to do if you like having knee caps.

Coming up with this 15% consensus enables Sunak to move away from the DST and save political face, something that’s now also an escape route for the likes of France, in reality the most active - and unnecessarily belligerent - proponent of action to impose a Europe-wide DST.

Crumbling?

Of course, none of this might matter anyway. The G7 Summit will take place, the declarations of triumph will be made, the photos will be taken, everyone will go home and then…what? Well, what will happen is that this 15% idea will end up going to the G20 Summit in Spain later in the year. If it gets approval there, then it will be presented to the 37 members of the OECD (Organization for Economic Co-operation and Development), where it’s likely that they’ll make all the right noises in public and fight like a bag of cats behind the scenes.

So for any country that might be less than enamoured at the thought of 15% corporation tax when they already offer a more inviting lower rate - hi Ireland! - it’s maybe worth just keeping schtum for the time being and see if this whole thing falls apart of its own accord. Will India sign up? Will China sign up? Singapore? Switzerland? What if they don’t?

Last word to UK Chancellor Rishi Sunak:

I hope people feel proud that the UK has stepped up and done this.

Well, make the most of the lovely photos, Rishi. I genuinely want to wish this well. The out-of-date taxation problem is a genuine one and it needs a global solution that is workable and enforceable.

Sadly I fear this is a classic example of ‘something must be done; this is something; this must be done!’