There are reasons why the family business sector should support the Biden proposals on global minimum corporate tax.
The Biden administration proposals, put forward at the beginning of April for a 21% global minimum corporation tax rate, have been attracting plenty of attention, but there seems to have been little comment from the family business sector. A bit odd since they would go some way to removing the competitive tax advantage large multinationals have over family businesses.
Many of us will be aware of the headlines. Amazon’s recent tax filings in Luxembourg were reported as booking €44bn sales income with zero corporation tax paid. The story is always more complex than the headlines but the competitive tax advantage for multinational enterprises (MNE’s) broadly comes from two things working together:
- firstly they are able to route income through low tax jurisdictions, and
- secondly the digital sales model locates their taxable activity outside of the country where sales are made.
All perfectly OK under current tax rules but not something most UK family business can do. As a result effective tax rates tend to be higher for UK family business compared to many MNE’s.
The Biden proposals combine a minimum global tax rate, which would significantly reduce the scope for shifting profit to low tax jurisdictions (even where some low tax jurisdictions don’t sign up to it), with a call for tax payable to more closely reflect sales in each country.
If this can be achieved it would increase the tax contribution from MNE’s and remove some of their tax advantage compared to smaller companies. It would in turn reduce pressure to increase the tax burden in other areas.
It could also make available more resource for public investment in infrastructure, energy transition, education and health, and for improving UK tax super-deductions for innovation and investment, all of which would support the family business sector.
MNE’s have immense resources to understand complex tax and regulatory proposals and then to lobby for results which favour their business.
Maybe the family business sector should be mobilising more fully in support of these reforms?