Chancellor Rishi Sunak is reportedly trying to negotiate an exemption for UK financial services ahead of a new global corporate tax rate. The carve-out negotiations follow an agreement between G7 countries last week.

If secured, such an exemption would be a massive boost to the City of London. However, such a move is said to be facing resistance from the United States.

The deal agreed this weekend by G7 leaders will introduce a global minimum corporate tax rate of at least 15%, designed to capture lost tax revenue from multinational companies. When implemented, the deal will ensure that large businesses pay corporation tax in the countries where the revenue is generated. As things stand, many multinational companies use complex arrangements to ‘offshore’ profits and subsequently pay less tax. Sunak is chairing the G7 talks and has referred to the tax agreement as “truly historic”, with the reforms “seismic”.

However, according to a report in the Financial Times, the Chancellor is now pushing for an exemption for financial services, both here and around the world. An exemption from banks is supported by European finance leaders and justified by the scale of financial services regulation in place, ensuring good capitalisation levels for banks in each subsidiary location.

Unlike tech companies, it is difficult for banks to avoid local corporation taxes due to this existing regulation. The OECD acknowledged this reality for banks already paying taxes when it published principles for global tax reform last year. Their paper, published in October, said banks “will generally be taxed in that market location with the result that there is no further need for any … re-allocation.”

With the G7 agreement in place, the next step will be for a wider-ranging OECD agreement, bringing China and India into the terms of the deal. It is believed that the G7 deal will form the blueprint for this broader agreement.

Commenting on the deal, a Treasury spokesperson said:

The historic global tax agreement backed by G7 finance ministers reforms the global tax system to make it fit for the global digital age, achieving a level playing field for all types of companies. The deal makes sure that the system is fair, so that the right companies pay the right tax in the right places.

The agreement will now be discussed in further detail at the G20 Financial Ministers & Central Bank Governors meeting in July.

About the author

Trading and Investment

Traded the markets for over 15 years, including Commodities, Bonds, Currencies, Equities, and Indices. I have also worked as a Chartered Financial Planner.
CeMAP, CeFA, DipFA, AdvDipFA, Ba(Hons) Economics, Chartered ALIBF

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