Global minimum tax could cost Britain billions

Minimum global corporate tax will undermine sovereignty and key Government policies

• £7 billion annual tax revenue could be lost because of global minimum tax

• Super-deduction and free ports incompatible with global minimum tax

• Corporate tax most damaging to entrepreneurship, productivity & economic growth

Conservative MPs are raising concerns that the proposed global minimum tax will undermine national sovereignty and economic growth.

It comes as a new report from the Adam Smith Institute finds that the minimum tax could cost £7 billion in lost tax revenues because of the relocation of companies. The report also spotlights the risk of the proposals being rejected by the United States Congress, resulting in an uneven global playing field.

Chancellor Rishi Sunnak will deliver the budget tomorrow and President Joe Biden will push the minimum tax at the G20 in Rome on the weekend.

The ASI has also said that the proposals are incompatible with key UK Government policies, including the super-deduction, free ports and the patent box.

The new report, Draining Our Pockets: How the global tax cartel could cost Britons billions, analyses the OECD’s Pillar One and Pillar Two proposed tax treaties that 136 countries have agreed to negotiate: 

• Pillar One would create a new tax on profits above 10% for companies with an annual revenue of over €20 billion, thus changing the recipient country for some of the taxes on profits of the world’s largest multinational companies.

• Pillar Two would introduce a global minimum tax of 15% on multinational companies with annual revenues of over €750 million, to avoid jurisdictions competing with lower taxes.

The minimum tax is meant to prevent a ‘race to the bottom’ in tax rates. But, according to the report, tax revenues have risen along with falling corporation tax rates in recent decades. In the UK revenues from corporation tax increased even as the rate was decreased from 30% in 2000 to 19% in 2017. 

Corporate taxes, economic analysis has consistently found, are the most damaging major tax to economic growth because they significantly reduce investment and entrepreneurial activity. The minimum tax, according to the ASI report, would undermine national sovereignty by locking the UK into a model of corporate taxes and reduce future policy flexibility

The report recommends, if the proposals are not to be abandoned entirely, a series of changes to the tax design:

1. Set the global minimum effective tax rate in proportion to the current global average effective tax rate, and at a lower rate, such as 10% rather then 15%;

2. Permit full expensing of capital in the global minimum tax rate to enable ‘super-deduction’ and freeports;

3. Calculate the minimum tax at an entity level (‘global blending’ in OECD-speak) rather than at each jurisdiction; and

4. Expand the definition of an excluded fund to cover all regulated entities such as private equity funds, insurance company funds, and unregulated (private) funds;

Greg Smith MP for Buckingham:

“The concept of a minimum level of taxation is absurd.  The United Kingdom must have total flexibility and sovereignty over taxation.  To lock ourselves into global minimums will end up a race to the bottom, hampering competitiveness, enterprise and growth.”

Andrew Bridgen MP for North West Leicestershire:

“While the Government’s proposals are well-intended, without adoption of the Adam Smith Institute’s sensible recommendations, the proposals as they stand would risk damaging the U.K. economy and further rewarding jurisdictions which are not implementing the measures. 

“This is unfortunately the same situation as the proposals for the U.K. to move to zero carbon. As Conservatives we should always appreciate that unfortunately we have to live in the world as it really is, not how we would like it to be.” 

Julian Morris, report author, says:

“Corporation taxes reduce investment, innovation and economic growth. Sunak understands this, which is why he introduced the super-deduction. But the global minimum tax would limit Britain’s flexibility to maintain such deductions and lower corporate tax rates.

“It would put Britain—and the world—onto a path of lower growth from which it would be difficult to escape.”

Matthew Lesh, Head of Research at the Adam Smith Institute:

“The global minimum tax could not only cost the Treasury billions, it would be incompatible with key Government policies such as the super-deduction and free ports. The lowering of corporate tax over the last decade has driven investment, entrepreneurial activity and economic growth. It’s crazy to give up the freedom to decide your own economic destiny. Brexit was meant to be about taking back control not sacrificing our tax-setting powers to Paris and Washington.  

-ENDS- 

Notes to editors:  

For further comments or to arrange an interview, contact John Macdonald, john@adamsmith.org | 07584778207.

The Adam Smith Institute is a free market, neoliberal think tank based in London. It advocates classically liberal public policies to create a richer, freer world.