Britain is ready to ensure Financial services exemption From the new global rules on taxation of multinational companies, this move will ensure that the largest banks in the City of London will not pay more taxes on their profits in other countries.
The Paris Organization for Economic Cooperation and Development (OECD) meeting, which is scheduled to end on Thursday, has accepted the UK’s Proposed new global tax systemAccording to two people familiar with the negotiations.
But these people say that Rishi Sunak, the Chancellor of the Exchequer, has had a price to win in bargaining the details of the taxation of new businesses. He had to make concessions to the United States in abolishing the UK’s digital service tax on US technology companies.
The divestiture of financial services is the first part of the global tax negotiations at the OECD Rich Countries Club, which is seeking to determine where the largest multinational companies must pay taxes in the future.
The second part of the negotiations focused on agreeing on a minimum global corporate tax rate of at least 15% to prevent companies from transferring profits to low-tax jurisdictions.
In the first part of the negotiation, known as the first pillar, the UK and France pushed to ensure that the largest companies, especially the US technology groups, pay more taxes in the countries where they operate but are not necessarily located.
The United States agrees to levy taxes more based on the location of multinational companies, as long as other countries promise to abolish their digital taxes, but what shocks the United Kingdom is that the first pillar tax rules must apply to all sectors, including financial services.
“This is a pure game between the United States, Britain and France,” said a person familiar with the negotiations.
The UK believes that the financial services industry will be removed from the new global taxation rules because regulation forces banks to capitalize separately in each jurisdiction in which they operate so that they can declare profits and pay taxes in the countries where they do business.
If there is no exemption, the UK Treasury may see city banks pay it less tax and pay more tax to other countries.
People familiar with the OECD negotiations said that the United States wants to ensure that the United Kingdom can make more specific commitments than it has so far to abolish its digital service tax as soon as possible, but the timing of the cancellation needs to be “crafted.”
The United States initially hoped that the United Kingdom, France, Italy, and other countries with digital taxes would cancel them when they agreed on new global tax rules, but this was strongly opposed by London and Paris.
An ally of Sunak said: “It’s a bit like handing over the keys to your car before you get the cash.”
But British officials recognized the need for a staggered process. Countries with digital taxes took a series of measures to eliminate them, while the United States also took action to implement a new global tax system.
Sunak’s allies said: “I think Americans want to abolish the domestic digital service tax is a fairly obvious problem. They will, but they must take a comprehensive look at the whole thing.”