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.
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.
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.
However, Margaret Hodge, a Labour politician, criticized Sunak for acting in support of the financial sector.
The Financial Times reported that Sunak had raised the issue at meetings of the G-7 in London, citing people briefed on the talks. But U.S. President Joe Biden’s administration is wary of American tech giants such as Facebook Inc. and Amazon.com Inc. being unduly singled out.
The aim of the G-7 global tax deal is to stop multinational firms lowering their tax bills by shifting profits, make them pay more in countries where they operate, and adapt the system to capture trade in intangibles like data and information.
Read more: G-7 Strikes Deal to Revamp Tax Rules for Biggest Firms
Discussions on excluding the finance industry and other sectors such as construction have been underway for several years. In the “pillar one” element of the deal, published last October, the sector is generally required to have “appropriately capitalized entities” in each market jurisdiction, meaning their profits are generally taxed in each respective market.
— With assistance by John Follain, Harry Wilson, Silla Brush, Alex Morales, and Craig Stirling
(Updates with EY comment, political context from fifth paragraph.)