Liberal Democrats

F7: Towards a Fair Global Corporation Tax System

Motion as passed by conference

Submitted by: 12 members

Mover: Christine Jardine MP (Spokesperson for the Treasury).

Summation: to be confirmed.

Conference celebrates the historic agreement at the G7, championed by the Biden administration, to create an international corporation tax system, aiming to tackle tax avoidance by large multinationals.

Conference believes that:

  1. The G7 agreement is a long overdue step towards making the international economy fairer and ensuring that some of the largest and most profitable corporations in the world pay their fair share of tax.
  2. The agreement's benefits can be maximised through improvements that will address certain weaknesses.
  3. Business tax shouldn't be punitive or stifle innovation, but large profitable corporations operating in the UK should pay their fair share of tax.
  4. Multinational corporations and tech giants should contribute to the economic rebuilding from Coronavirus.
  5. Businesses of the future should be better constituted to contribute to the good of society both in the UK and around the world, as well as being better regulated and effectively taxed.

Conference notes that:

  1. Under 'pillar one' of the agreement, all multinational companies making profit margins over 10% will have 20% of their global profits beyond that threshold reallocated on the basis of where their customers are, to be taxed in those countries at the local corporation tax rate.
  2. Under 'pillar two', multinationals must pay a minimum corporation tax of 15%, and if the rate in a jurisdiction is less than 15%, then the difference between the effective rate in that jurisdiction and 15% will be taxed in the country where the company is headquartered.
  3. As part of the deal, the UK Government agreed to withdraw the Digital Services Tax (DST), which is levied at 2% of the revenues of search engines, social media services and online marketplaces operating in the UK.
  4. The G7 deal is subject to further negotiations via the G20, and ratification by national legislatures.

Conference notes with concern that:

  1. The UK Government failed to back the Biden administration's original proposal for a global minimum rate of 21%, instead pushing for it to be lowered to 15% - despite having raised UK corporation tax to 25% (effective in 2023).
  2. According to the think tank IPPR, the UK exchequer would have gained an additional £6.8 billion a year under a minimum rate of 21%.
  3. The UK Government has not published an analysis of how much it expects to raise from this proposed system, and hasn't disclosed when it will withdraw the DST.
  4. The UK Government pressed for big banks to be exempt from the agreement, and seeks to create eight tax-free freeports in England.
  5. Analysis suggests that the replacement of the DST with the current version of 'pillar one' in the UK will result in a combined tax cut of £232.5 million for Amazon, Facebook, Google and eBay.
  6. Experts have warned that if UK Corporation tax payments count towards liabilities under 'pillar one', Amazon, Facebook, Google and eBay will not see any significant change in their corporation tax bill in the UK.
  7. Unless the deal is improved, Amazon could be exempt from paying tax in the UK under 'pillar one', as its overall profit margin does not exceed 10%.
  8. The proposed minimum rate of 15% is significantly lower than the average OECD rate of 23.5% and similar to the corporation tax rates of Lichtenstein (12.5%), Ireland (12.5%) and Switzerland (14%).
  9. According to Oxfam, the 15% minimum rate fails to benefit the finances of developing countries, as they will continue to face unfair competition from tax havens.
  10. The UK Government failed to implement a Windfall Tax to recoup some of the record profits large corporations and tech giants enjoyed due to public health restrictions.

Conference reaffirms Liberal Democrat commitments to:

  1. Ensure that all businesses operating in the UK pay tax in the UK on those operations, restricting the ability of multinationals to unfairly shift profits out of the UK to low tax jurisdictions.
  2. A business tax system that encourages investment, with simplified capital allowances, an increase in the Annual Investment Allowance ensuring that businesses obtain tax relief for productive investment, and higher Writing Down Allowances to encourage more investment by the largest businesses.
  3. Introducing a General Anti-Avoidance Rule, setting a target for HM Revenue and Customs to reduce the tax gap and investing in more staff to enable them to meet it.

Conference further calls on the Government to:

  1. Back President Biden's proposal for a global minimum rate of corporation tax at 21%, and persuade other countries to do the same.
  2. Listen to developing countries' concerns and ensure that they will benefit from the new system.
  3. Work for the broadest possible adoption of these measures via the G20, the OECD and other international organisations.
  4. Resist international pressure to remove the DST before the new system is fully operational.
  5. Ensure that the implementation of 'pillar one' in the UK does not lead to a tax cut for some of largest and most profitable tech companies in the world such as Amazon, Facebook, Google and eBay.
  6. Ensure that profitable subsidiaries of large business groups pay tax in their own right as necessary, so that tech giants such as Amazon aren't exempt from new rules due to the 10% profit-margin threshold.
  7. Ensure that current UK Corporation Tax payments don't count towards liabilities arising under 'pillar one', which would lead to a tax break for large multinationals.
  8. Publish its official financial analysis setting out the agreement's expected impact on the UK Exchequer.
  9. Develop a strategy to boost UK startups and growth-stage companies that create high-skill, high-wage jobs, with a particular focus on companies that can help tackle the climate emergency, cooperatives, mutual, and social enterprises.
  10. Publish a report analysing the effect on the UK Exchequer and on competition of a Windfall Tax on the super-profits of large corporations that benefited from public health restrictions during the pandemic.

Applicability: Federal.