Global corporate tax reform plans backed by G20 nations
- G20 ministers back US President Joe Biden’s plans on international tax reforms
- Britain urged to increase anti-money laundering red tape
- UK business confidence rises as owners anticipate an investment boom on the horizon
- Young people disproportionately disadvantaged by COVID-19
- UK house sales boom turbocharging wealth gap between rich and poor
The world’s largest economies endorsed a landmark agreement on international tax reform over the weekend and are now pressuring smaller holdout nations to sign up for the deal.
Finance ministers from G20 nations, including the United States, UK, China, Germany and Russia, met in Venice, Italy, over the weekend and acknowledged the need for a global minimum corporate tax and fairer access to vaccines for less developed countries.
On the topic of vaccines, the G20 group addressed the health and economic challenges associated with COVID-19 and the impact the virus is having on vulnerable countries.
Ministers and central bank governors agreed to back an allocation of the International Monetary Fund’s (IMF) Special Drawing Rights (SDRs) worth USD 650BN (GBP 469BN) to help struggling economies deal with the challenges of the coronavirus.
G20 nations, which account for more than 80% of global output, 75% of world trade and 60% of the worldwide population, have long been recognised by analysts and economists for exercising considerable international influence.
The group’s stature has risen over the past few years, and while it is not a legislative body, they influence global policy and cooperation.
The move to introduce a minimum international tax rate of 15% would trigger a significant shift in how large corporate firms such as Google, Amazon and Apple are taxed by basing it on their products and services rather than where their headquarters are located.
As Apple is headquartered in the United States, the company paid just GBP 9M in tax to the UK last year, despite amassing more than GBP 1.1BN in sales for the same year.
The tech firm, which has a market valuation of USD 2.4TN (GBP 1.73TN), is one of several corporate giants that have come under fire for tax evasion in Britain by funnelling profits through divisions in low-tax jurisdictions.
An Apple spokesperson responded to claims of tax avoidance, stating: “We respect and support the important role taxes play in the economic growth and well-being of nations.
“As the biggest taxpayer in the world, we pay all taxes owed under each country’s laws and regulations everywhere we operate in the world.”
The tech giant released findings showing the adverse impact of coronavirus restrictions on revenue, with UK retail sales declining by 20% year-on-year and pre-tax profits decreasing from GBP 39M to GBP 31M.
Apple’s report also showed that operating costs had increased by 26% due to “increased activities performed by the company”.
Still, given that profits were almost identical with pre-pandemic levels, leading think tanks are pleased that action is finally taking place.
However, US Treasury Secretary Janet Yellen warned that plans on corporate tax might not come into effect until 2022.
G20 international tax reform plans could be delayed
International tax reform plans could be delayed as questions remain over whether US President Joe Biden can persuade Congress on the deal’s merits.
Janet Yellen implied that corporate tax reform could be implemented in two stages: the minimum global tax rate and the part that would allow tech firms to be taxed based on services rather than where they are headquartered.
The US Treasury Secretary Janet Yellen also warned that a group of smaller nations such as Ireland and Hungary are still opposed to the idea.
While other countries in favour of the tax reform are attempting to persuade these countries to sign up for the deal, Treasury Yellen noted that “it’s not essential for every nation to be on board.”
Progress on international tax laws caps eight years of political wrangling over the issue. Aside from receiving G20 backing, 130 of 139 countries listed in the Organisation for Economic Cooperation and Development (OECD) group are also supporting the deal.
Although there are some outstanding issues, most finance ministers, including UK Chancellor of Exchequer, Rishi Sunak, have welcomed the historic tax deal.
It comes as UK RegTech specialist SmartSearch warns that Britain is at risk of being left behind in the fight against money laundering and terrorist financing if they diverge further from EU Anti-Money Laundering Authority (AMLA) regulations.
The European Commission is expected to launch AMLA as part of a broader raft of measures to clamp down on organised criminal activity.
John Dobson, CEO at SmartSearch, stated: “Since the outbreak of COVID-19, organised crime has increased in the UK. Many criminal gangs in Britain are taking advantage by exploiting loopholes in AMLA processes and using far more sophisticated forged ID documents to get their dirty money through the laundering process.”
During the March Budget statement, UK Chancellor Rishi Sunak announced the establishment of a new HMRC task force, created with the sole purpose of tackling tax avoidance and fraud.
Mr Dobson notes that while the EU’s task force will have no jurisdiction in the UK post-Brexit, it’s essential that Britain coordinates with agencies in other countries to identify sources of the most significant money laundering threats.
Britain’s departure from the EU appears to have created significant challenges for several businesses in the UK, with new research showing that more than eight in ten business owners believe Brexit will negatively impact trade in the long term.
UK business owners expect Brexit to cause long-term hurdles
According to new research, more than eight in ten UK bosses believe that Brexit will have a more detrimental effect than the coronavirus pandemic on trade.
In a survey conducted by tax and advisory firm Blick Rothenberg, iNews found that 80% of participants believe COVID-19 hit their businesses harder than Brexit but that the end of free trade with the European Union will have a more damaging impact in the long term.
Blick Rothenberg’s head of Brexit advisory, Alex Altmann, noted that 65% of respondents believe new trade rules have caused the most significant disruption, with VAT rules (50%), operational challenges (51%) and staff shortages (40%) cited as the next main disruptors.
Despite these findings, UK business confidence continues to rise, with firms gearing up for a boom in spending and investment when the UK economy removes all coronavirus lockdown restrictions.
According to a survey conducted by accountancy and advisory firm Binder Dijker Otte (BDO), UK business optimism hit its highest levels since June 2005, with the outlook for the manufacturing sector looking increasingly positive.
Although concerns remain over the spike in Delta variant caseloads, Britain’s progressive COVID vaccine rollout continues to boost hopes for a swift economic rebound.
A separate survey conducted by Deloitte has also shown that hiring and investment activity is expected to hit their highest level since 2014 due to British firms taking advantage of record-low interest rates and tax incentives to meet growing demand.
However, Britain’s robust recovery is also widening the wealth gap in the UK, with the surge in global share prices, rising consumer prices and the house price boom triggering windfall gains for middle-income and high-income households.
UK wealth gap widens during COVID pandemic
According to new research from the Resolution Foundation think tank, COVID-19 has led to one of the most significant increases in wealth inequality, with net assets for those in the middle of the wealth distribution rising by 9%, courtesy of the house price boom.
Although the UK suffered one of the sharpest economic downturns in more than three centuries, the spike in house prices added approximately GBP 7,800 to the average British household.
Reduced spending due to COVID lockdown restrictions has also led to increased household savings, while net assets for those in the middle class rose to approximately GBP 80.5K per adult.
The spike in housing prices has priced most new buyers out of the market, and although we’ve seen some early signs of the impact the tapering down of the stamp duty holiday will have on prices and activity, as wage growth is weak, new buyers could continue to struggle.
Rising house and asset prices have also led to a rise in poverty among young people aged between 18-24 years, many of whom have struggled to find work and lost their jobs due to COVID-19.
A new petition has been submitted to Parliament, urging UK Chancellor Rishi Sunak to lower the retirement age to 60 to help free up jobs for young people who have been disproportionately affected by the coronavirus.
Although the UK government introduced support measures to help people overcome the challenges of COVID-19, with the furlough scheme terminating in September and other support measures being tapered, fears over a spike in unemployment levels are growing.
To reduce employment competition, the petitioner proposed reducing the state pension age to take older British workers out of the jobs market and open up positions for young people.
Although this would cost the state, the petition notes that “it would be a far more positive cost than paying out Universal Credit and would help young people restore their future.”
Currently, the petition has over 1,000 signatures; however, it would need to gather 10,000 before forcing the UK government to respond.