ALEX BRUMMER: Taxing times for Rishi Sunak at the G7 meeting
Rishi Sunak’s Covid halo will glow even brighter should he convince G7 finance ministers that there can be no delay in adopting a universal approach to taxing global companies and forcing the digital giants to pay their way.
The ultimate objective is to ensure that Amazon, Google et al pay a levy on sales in the country in which they are earned, ending the advantage over domestic players, whether they be Tesco or John Lewis.
Whatever great tax triumph is declared in London and in Cornwall, when the heads of government meet next Friday, one shouldn’t count on an early breakthrough.
Optimism: Chancellor Rishi Sunak said he is ‘confident’ of reaching an agreement with his fellow G7 finance ministers on taxing the tech giants
Best that might be hoped for is that the current US dispute with Britain, France and Italy over digital services taxes can be hosed down.
The Americans are threatening a 25 per cent tariff on certain goods unless the taxes are axed. Instead, the leaders would agree in principle to a minimum global corporation tax rate of 15 per cent.
And digital firms would be taxed on the sales in the countries in which they operate.
Even if all, or some, of this is decided, it will need a buy-in from the wider G20 group of countries and the Paris-based OECD.
None of this will be easy. I recall being present at an International Monetary Fund press conference several years ago when then Tory chancellor George Osborne declared that the G7 industrialised nations had agreed on collective action to prevent multinational companies from shifting profits from the countries where they are earned to offshore locations.
Osborne hailed the deal, to be finalised by the OECD, as ‘incredibly important’.
The Biden administration may be more sympathetic to a global tax deal than Donald Trump, but it cannot deliver it alone.
There is a long-standing angst in Washington to any accords with a scent of extra-territoriality where sovereign US decisions could theoretically lead to global sanction.
More significantly, the president is currently involved in negotiations with Congress over the approval of a package of up to $1.7 trillion of infrastructure spending in addition to the $5 trillion which the US has already spent on combating the pandemic.
Under the original proposal, Biden’s plans would partly be financed by raising corporation taxes from the 21 per cent set by Trump back up to 28 per cent.
Republicans on Capitol Hill don’t like the elements of the infrastructure plan which provide more money for childcare and education.
It is regarded as extravagant and they want the plan pared right back in the name of fiscal responsibility.
Paradoxically, the same conservative voices in Congress oppose tax rises, even though they could be presented as easing budgetary pressures.
What is clear is that the bandwidth of the US Treasury is far more occupied at this juncture in sorting out domestic fiscal policy than taking urgent action on a global tax, which will require Congressional assent.
Passage won’t be eased by the unrelated decision of the UK’s Competition and Markets Authority to launch a probe, working closely with the European authorities, into whether Facebook might be abusing its dominant position in the social media or digital advertising markets through the way it collects and uses data.
Asking the US to effectively agree to new taxes on Silicon Valley while probing Facebook at the same time will not be helpful with heavily-lobbied legislators.
As useful as it would be to make progress on the digital tax agenda, G7 citizens in the countries represented will want to hear more about the pandemic.
Ahead of the meeting, the IMF unveiled its $50billion plan to vaccinate the world by the end of 2022.
If it really unleashed the $9 trillion of output forecast, it could go a long way towards easing pressure for more taxation.
Practical obstacles to defeating Covid formed part of the discussion at a G7 meeting of health ministers and pharma companies this week.
European life science executives argued that waiving the intellectual property behind vaccines would not get the world vaccinated any quicker.
Nor would it encourage pharma firms to speed up innovation within 100 days to deal with the next health crisis.
The real work that needs to be done is to ramp up vaccine manufacture, unblock component bottlenecks and find practical ways to get vaccines into the arms of people in less developed societies.