29 June 2020

CALL to ACTION: Write to the chancellor

US withdrawal from global tax talks

Summary
The US is pulling out of the negotiations that might have reformed global tax rules. We are asking our supporters to write to the chancellor to ensure that Britain does not give in to these US tactics and that we prioritise the needs of developing countries in the discussions.
Template letter for chancellor
 
Global tax rules - what next?
In the last couple of weeks there have been widespread news reports that the US is pulling out of the global tax rules negotiations. These discussions have been taking place at the OECD (Organisation for Economic Cooperation and Development) under the title of the BEPS 2.0 inclusive framework.

It is widely accepted that the current rules for how large multinational corporations are taxed are not fit for purpose. The fundamental problem is that it is very easy for companies that make money in one country to declare that profit in another. If the country where they declare that profit is in fact a tax haven (a country that charges little or no corporation tax) then the company pays very little (if any) tax on its profits.

Globally, this behaviour is estimated to cost the world upwards of $600bn each year, approximately 20% of global tax revenues. For developing countries this loss is especially problematic as they do not have large tax revenues in the first place, and so as a proportion of their overall tax income the losses from tax dodging impact them especially hard. Estimates vary but currently, it is suggested that developing countries lose anything from $200-400bn every single year. This is significantly more than those countries receive in foreign aid.

In light of this, it is essential that any reform of the global tax rules must put the needs of developing countries first. If they really did receive the tax that they are owed then it’s possible that the Sustainable Development Goals could be achieved, and extreme poverty eliminated. This is the prize that genuine reform of global taxation holds out for us.

However, the withdrawal of the US from these negotiations has certainly made the prospect of a good outcome far less likely. In their communications about withdrawal, it is not entirely clear if the the US is merely asking for a ‘pause’ while we all get to grip with Covid-19 or whether they are pulling out entirely. It is certainly clear that they have withdrawn because they are not getting their way.

For this reason, we are asking our supporters to write to the chancellor to encourage him to continue the negotiations, but to do so in a way that prioritises the needs of developing countries. There is a serious proposal on the table, led by the G24 group of developing and emerging economies that would have created a fairer global tax system. The UK government should seriously consider it.

At the same time, in April this year, a 2% digital services tax came into force in the UK. This tax specifically targets the giant tech companies (such as Facebook, Google, Amazon) that make profit from UK consumers but who pay relatively little tax in the UK. The US has threatened retaliatory action against countries that impose such unilateral digital services taxes, but we need to ask our chancellor to stay strong and not give in to such tactics.

We have therefore provided a template letter that supporters can use to write to the chancellor, and we would encourage you to use it.

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