June 21, 2021

U.K. Pushes for Finance Exemption From Global Taxation Deal

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U.K. Chancellor of the Exchequer Rishi Sunak is pressing for the City of London to be exempt from a plan by global leaders to make multinationals pay more tax to the countries where they operate.

Finance ministers from the Group of Seven advanced economies struck a historic deal last weekend that could force the world’s biggest companies to pay a minimum corporate tax rate of 15%.

Sunak is expected to make the case that financial services, including global banks with head offices in London, should be exempt from the plan when talks move to the G-20 next month.

Rishi Sunak at the G7 summit in London, on June 4.

Photographer: Andy Rain/EPA/Bloomberg

The Chancellor wants to make sure the “right companies pay the right tax in the right places,” the Treasury said Tuesday.

It’s unclear whether any exemption would lower financial firms’ tax bills, since they are already heavily regulated. Still, Sunak’s supportive stance for the industry is the latest olive branch from Boris Johnson’s government, which met with finance leaders on Monday to mend relations after years of Brexit negotiations that largely sidelined the sector.

A European Union official pushed back against the idea of an exemption. The EU expects all companies to pay their fair share of taxation, the official said at a briefing for journalists on Wednesday.

Tax Rates

Banks tend to already have higher effective tax rates than other companies. Of the 20 biggest financial companies by assets in Western Europe and North America, 19 paid an effective rate above 15% in 2019, with an average rate of 23%, according to data compiled by Bloomberg.

“Sunak is fussing about not a lot,” Richard Murphy, director of Tax Research LLP in the U.K., which campaigns on tax issues, said in a blog post.

Any carve-out for finance “should not be seen as a concession, but a reflection of the practical challenges” of applying new rules to a sector that’s already required to pay taxes on local entities, according to Richard Milnes, U.K. banking tax partner at consultancy EY.