Rishi Sunak's global tax plan set to raise costs for investors, workers & consumers – how?

Rishi Sunak recently welcomed “milestone progress” on global tax reform as G20 finance Ministers met in Venice. On July 10, HM Treasury shared the Ministers present fully endorsed a global tax agreement and called for swift action to finalise the details by October.

“We must continue to build on this momentum over the coming months and work together as an international community to create a fairer tax system, which cracks down on tax avoidance and levels up our high street.”

While these plans are primarily aimed to target large multinationals, such as Amazon and Google, a number of experts have warned knock-on consequences could hit consumers and workers down the road.

Leon Fernando Del Canto, an international tax barrister and head of London-based Del Canto Chambers, warned those in precarious employment may be among the hardest hit by the proposals.

Mr Del Canto explained: “My opinion is that the G20 agreement on a 15 percent corporation tax is a direct attack to the tyranny of the Gig Economy, imposed mercilessly by the so-called Silicon Six (Google, Amazon, Facebook, Appel, Microsoft and Netflix).

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“The Gig economy and its tax evasion lead strategy has badly disrupted local business and the job market. It has ruined many local businesses and created an uberization of the job market (zero hours contracts).

“I believe that the G20 agreement will not deter Multinationals, despite their threats, to operate domestically. What seems clear is that they will need to invest more locally to optimise their tax payable in each country. The situation will improve local business sales as the Silicon Six will increase their costs. It will also increase domestic tax receipts and equalise tax pressure across the board.

“In reality, we are facing a revolution in the global economy. The G20 finance Ministers , backed by the OECD, have agreed a radical departure from a century old international tax bargaining souk, where multinationals forced States to offer the lowest possible corporation tax rate and advantages to attract their millionaire investments.

“The world has been a multinationals’ market since the middle 1920s when the largest US corporations began to invest internationally in search of new markets and to protect themselves against trade barriers.

“The new agreement changes the rules and States are taking the driver’s seat. The plan is to impose domestic taxes on multinationals, primarily to the US based Silicon Six (Google, Amazon, Facebook, Apple, Netflix and Microsoft). The Silicon Six will start paying taxes where they generate their income, not where they are registered for tax purposes. Silicon Six global sales are more than $900 billion a year but they pay less than two percent corporation tax as evidenced by Amazon paying just £293million in UK tax in 2019 despite selling £12.6billion

“But the G20 agreement is not new. The OECD 135 countries started in 2016 project BEPS to stop corporations tax avoidance practices by exploiting gaps and mismatches between domestic tax systems. BEPS stands for (Domestic Tax) Base Erosion and Profit Shifting (BEPS).

“If a minimum corporation tax rate of 15 percent on profits is agreed, Amazon may pay close to £1billion instead of the £293million paid until now

“If we take into account that Corporation tax receipts in the United Kingdom amounted to approximately £63.2billion, we can see the enormous impact that this new tax could have in the UK tax system. This larger corporation tax contribution may have an impact on consumer’s tax payable, if we consider that UK tax receipts amounted to approximately £556billion, half of what Amazon should have paid in a single year.

“How this tax will affect consumers on their dealings with the Six Silicon is to be seen as we can expect that further costs will be passed to them. However, this increase in costs will make GAFAM less competitive and will create a fairer domestic UK market. For example, Amazon will need to compete on equal footing with existing and new domestic operators selling identical products.

“My opinion is that once the initial adjustments have been made, the main beneficiaries will be domestic businesses as some of the Silicon Six will lose their unfair competitiveness. The job market will be impacted as the zero hour type of economy will be heaveñy challenged when multinationals have lost control and power.”

Yvonne Goh, a Lecturer and Head of School of Professional Education at LSBF Singapore, also reflected on how investors and consumers themselves may see their costs rise: “The minimum global tax is meant to discourage MNCs from shifting profits from high tax jurisdictions (where economic activity is) to low or no tax jurisdictions (where there is minimal or no economic activity). If success can be achieved, this could mean that MNCs would need to pay their “fair” share of tax, which is higher than it is currently.

“For investors (on a personal level), this could mean lower than ideal returns to investors. Thus, it is likely that the growth in investments may not be as promising as what most investors had hoped for.

“Alternatively, to maintain competitive returns to investors, there could be a possible hike in consumer prices. Imagine if this happens at every point of the supply chain, the prices will be unimaginable. Of course, other factors such as a higher level of productivity/efficiency, positive effect from the new norm evolving from the post-Covid may cushion the impact a little.”

Similar sentiment was shared by Christian Keuschnigg, a Professor of Economics at the University of St. Gallen, who warned: “Every company wants to maintain their return on capital and protect stock market value, and I expect they will do so as soon as tax is effective. If there is additional tax, they will try to pass on the burden to other parties, raise prices and fees to consumers and business customers, pay lower wages, and squeeze prices of input suppliers.

“After sufficient time adjusting, up to 50 percent of corporate taxes result in lower wages, while in the short-term, there might be dividend reductions or a correlation in stock market valuation, making affected companies somewhat less valuable.”

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