The tax deal, agreed between the UK, France, US, Germany, Canada, Italy and Japan, could boost economies as they recover from the Covid crisis, with Mr Sunak saying the fresh tax revenue will “help pay for public services here in the UK”.
However the move could hamper the “freeports” policy championed by the Chancellor. Mr Sunak has announced eight freeports which will benefit from tax breaks for businesses.
In a policy paper written before he entered government, Mr Sunak had cited reduced rates of corporation tax as one of a series of possible incentives for businesses choosing to operate within such areas. But critics said the G7 reforms “scuppered” his own flagship policy and likened the G7 to a “global tax cartel”.
US treasury secretary Janet Yellen also said there was an understanding that the reforms would replace digital services levies, such as that applied in the UK since last year. “The timing remains to be worked out exactly but there is broad agreement that these two things go hand in hand,” she said.
The shake-up will affect companies with profit margins of at least 10 per cent. The new formula is aimed at ensuring companies pay tax in countries where they operate, and not just where they have headquarters. It will mean that 20pc of any profit above the 10pc margin will be reallocated and then subjected to tax in the countries where they make sales.
The Treasury has been fighting to ensure that the Silicon Valley giants intertwined in daily life pay tax where they do business. Amazon paid less than £300m in UK tax in 2019 after logging revenues of almost £14bn. In 2020, its UK revenues surged to hit $26.4bn (£19bn), the fastest level of growth in all of its major markets.
The US retailers’ profit margins are less than 10 per cent, but a subsequent ‘carve in’ to be finalised would ensure that it too is caught by the reforms.
Amazon, Facebook and Google all welcomed the tax crackdown after it was announced on Saturday. Former deputy prime minister Nick Clegg, who is now vice president for global affairs at Facebook, said “we want the international tax reform process to succeed and recognise this could mean Facebook paying more tax, and in different places”.