At the recent G7 summit in Cornwall, a group of the world’s most developed nations agreed to a new tax deal that would seek to make multinational tech businesses pay more tax.
The deal consists of two parts that have been agreed upon by Canada, France, Germany, Italy, Japan, the UK and the US.
The first part would seek to ensure that multinational companies pay more tax wherever they sell products or services.
It would achieve this by ensuring that companies can be taxed in any country where they make more than 10 per cent profit on sales. Above this amount, the company would have to pay 20 per cent tax in that jurisdiction.
This differs considerably from the current international tax regime, which allows companies to earn money in one jurisdiction but pay a lower tax rate in the country where they are headquartered – allowing them to retain more of their profits.
The second part of the new international tax agreement will set a global minimum corporate tax rate of 15 per cent.
This will prevent some nations from undercutting other country’s tax rates to attract multinational companies, as has previously been the case.
For example, Ireland has operated a low corporation tax rate of 12.5 per cent for many years, which has helped to attract the likes of Amazon and Facebook, which have headquartered there.
These reasons combined are why Facebook, which has its international HQ in Dublin, paid £28.5 million in tax to the UK in 2018, although its revenue was £1.65 billion.
Although the deal seems likely to go ahead, a lot of detail is still to be worked out, including which companies are going to be covered.
It is also only an agreement between the seven nations involved at the moment and is due to be discussed at the next G20 meeting before 139 countries analyse it to see whether they are willing to accept the change in tax rules.
Although it is only likely to be targeted at the very largest multinational corporations, businesses in the tech sector should monitor it to make sure they aren’t affected.
We have helped many clients in the tech sector deal with international tax matters, to find out how we can help, please speak to our specialist tech team.