Rishi Sunak hails ‘historic’ breakthrough as G7 ministers agree global tech tax deal

The deal, agreed between the UK, France, US, Germany, Canada, Italy and Japan, could boost economies as they recover from the Covid crisis with Mr Sunak saying the fresh tax revenue will “help pay for public services here in the UK”. 

However the move angered some who accused the Chancellor of creating a “global tax cartel” and potentially scuppering his plans for new freeports, where normal tax and customs rules do not apply in order to spur investment. 

“Rishi has rushed out an announcement that the G7 has created a global tax cartel. The world’s most powerful governments have clubbed together to shirk the responsibility of going for growth and chosen instead to maximise the taxman’s take,” said Matt Kilcoyne, deputy director of the Adam Smith Institute.

“These proposals are not in the UK’s interest and Rishi has sold Britain short. Sunak’s flagship policies of Super Deductions and Free Ports are dead in the water. The Chancellor’s own policies, scuppered by his own hubris.”

The Treasury has been fighting to ensure that the Silicon Valley giants intertwined in daily life pay tax where they do business. Amazon paid less than £300m in UK tax in 2019 after logging revenues of almost £14bn. In 2020, its UK revenues surged to hit $26.4bn (£19bn), the fastest level of growth in all of its major markets. 

The shake-up will affect companies with profit margins of at least 10pc. The new formula is aimed at ensuring companies pay tax in countries where they operate and not just where they have headquarters and will mean that 20pc of any profit above the 10pc margin will be reallocated and then subjected to tax in the countries where they make sales.

The agreement will be discussed in further detail with the group of G20 nations in July, the hope being that other nations will follow suit.  

Rain Newton-Smith, chief economist at the Confederation of British Industry, said that finding an agreement on international tax at the G7 “is no mean feat and will light the touchpaper for the wider multilateral process”. 

Some have argued that the deal has not gone as far as hoped – US President Joe Biden had initially argued that the minimum rate should be up to 21pc.

“Setting the rate at 15pc is far too low, especially compared to the fact that the UK’s rate is going up to 25pc in 2023. This deal won’t do enough for British businesses who are trying to compete with global giants who pay ultra-low levels of tax,” said Robert Palmer, director of advocacy group Tax Justice.