UK could pull out of global corporation tax deal that ‘stitches us up’
‘There is no question that we didn’t come out of the EU to fetter our discretion on issues like that’
LIZ TRUSS could pull the UK out of a deal agreed by Rishi Sunak to “stitchup” global corporation tax rates at 15 per cent, it has emerged, as two of her most prominent supporters criticised the agreement.
Jacob Rees-Mogg, the Brexit opportunities minister, said the UK should withdraw from the international agreement sealed last year because it “works against British interests”.
And Simon Clarke, the chief secretary to the Treasury, who is being lined up for a prominent role in Ms Truss’s Cabinet, said “one of the whole rationales for Brexit” was to have competition between countries on matters like tax.
The interventions by two key allies suggest that a government led by Ms Truss could seek to quit the deal, to which Mr Sunak signed up the UK in October 2021, as one of 136 countries attempting to squeeze more tax out of major multinational companies.
The agreement – which had been pressed for by the Organisation for Economic Co-operation and Development (OECD) intergovernmental body for years – comprises two “pillars”.
Under the first, a share of large multinationals’ profits would be allocated to the countries where their products and services are actually consumed, stopping the profits from being booked in other nations.
The second pillar would set a global floor for corporation tax at 15 per cent. The deal had been pushed for by Joe Biden, as well by Mr Sunak, who was chancellor at the time.
Hailing it in October, Mr Sunak said: “We now have a clear path to a fairer tax system, where large global players pay their fair share wherever they do business.”
However, the agreement still needs to be ratified by individual countries, and has run into difficulties on both sides of the Atlantic. In the US, Mr Biden is unable to get the global minimum through the Senate, while Hungary is blocking it within the EU.
The deal has also angered those on the Right of the Conservative Party, who have argued that it is an unacceptable infringement of national sovereignty and bad for economic growth.
It could also tie Ms Truss’s hands if she wanted to slash corporation tax as part of her proposals for “low-tax zones” and more radical freeports.
Now, Mr Rees-Mogg has said that the UK should walk away from the agreement altogether.
He said: “Tax sovereignty is one of the most important policies for any nation. The United Kingdom should not be part of a global corporation tax stitch-up which works against British interests.”
He added: “If we want to be competitive, pro-growth, and pro-investment, we need to leave this deal and be free to set our own corporation taxes as we wish, starting with reversing Sunak’s forthcoming corporation tax increase.”
Mr Clarke said that while it was important to work with other nations to close the “tax gap” and remove “perverse incentives”, the UK should “reaffirm that competition between nations is a good thing”.
“That was one of the whole rationales for Brexit … competitive tension between countries to drive growth and wealth creation.”
Mr Clarke also said that Ms Truss would not allow her plans for tax-free zones to be compromised.
“There is no question whatever that we didn’t come out of the EU to fetter our discretion on issues like that,” Mr Clarke said. “I know she would not allow her government to find itself artificially constrained.”
Corporation tax stands at 19 per cent in the UK but it is due to rise to 25 per cent in April 2023 under a policy introduced when Mr Sunak was chancellor. Ms Truss has pledged to scrap the rise.
Globally, the agreement has been thrown into doubt because of its uncertain ratification in the US, where Democratic senator Joe Manchin is resisting the idea of a global minimum.