G7 ministers from the UK, US and several other large, cash-rich nations reached a landmark deal on Saturday to raise more tax from the likes of Google, Facebook and Amazon and reduce their hopes of shifting profits to low-tax offshore havens. But an official close to the talks between G7 ministers said the UK could be hoping “for an exemption on financial services” in the City of London, according to the Financial Times.
This was an area largely ignored in nearly a year of trade negotiations between the UK and EU, with arguments rumbling on about the City of London’s access to markets throughout the bloc and leading many large firms to question their long-term future in the UK.
Mr Sunak fears global banks with head offices in London could be affected by the new move.
The UK’s largest bank by revenues HSBC generates more than half of its income from China, while UK-headquartered Standard Chartered conducts little business in this country and has a primary focus on Asia and Africa.
Those briefed at the weekend meeting of G7 ministers said Mr Sunak raised the issue there, and his allies have confirmed he will continue to press on this issue when talks move to the G20 next month.
One British official said: “Our position is we want financial services companies to be exempt and EU countries are in the same position.”
But Brussels has sent a warning to the UK over its reported plan to push for an exemption on financial services in the City.
Journalist Antonello Guerrera wrote on Twitter: “‘There are still technicalities and details to discuss, but we expect all the companies to pay their part’ of G7 global tax, EU official tells me on @FT’s report about the UK reportedly ‘pushing for an exemption on financial services’ in the City of London.”
It was agreed under “pillar one” of the deal that countries could tax 20 per cent of the profits from the world’s biggest multinationals above a 10 per cent margin based on where the company made its sales – even if that company does not have a physical presence in that country.
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However, the proposals outlined by US President Joe Biden in April to define the type of firms in the pillar one plan was cross sector.
This was based on the 100 biggest and most profitable companies, bringing the issue of financial services firmly back under the spotlight.
Speaking after a meeting of G7 ministers at Lancaster House, Mr Sunak said of the historic tax agreement said: “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.”
The Chancellor added he was “proud” of his colleagues, with Japan, Canada, France and Italy also part of the group, for working together to produce a deal that “finally brings our global tax system into the 21st century”.
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A Treasury spokeswoman said: “Under pillar one of this historic agreement, the largest and most profitable multinationals will be required to pay tax in the countries where they operate – and not just where they have their headquarters.
“The rules would apply to global firms with at least a 10 percent profit margin – and would see 20 percent of any profit above the 10 percent margin reallocated and then subjected to tax in the countries they operate.
“The fairer system will mean the UK will raise more tax revenue from large multinationals and help pay for public services here in the UK.”