By Doug Connolly, MNE Tax
The UK’s primary interest in international tax talks is addressing digital taxation and the allocation of taxing rights under the OECD’s “Pillar One,” but it is okay with the US’s not-digital-only approach to Pillar One, according to Mike Williams, Director of Business and International Tax with HM Treasury UK. The UK is also willing to accept, as part of a package deal, a “Pillar Two” global minimum tax.
Speaking virtually at a May 5 event held by the Oxford University Centre for Business Taxation, Willams emphasized, however, that in both cases the details are important, as is their ability to make it through US Congress.
On Pillar One, Williams said he recognizes that the OECD’s attempts to ringfence the digital economy were overly complicated. However, he added that “a solution that doesn’t deal with the digital economy isn’t really a solution at all.”
The US proposal under Pillar One would reallocate taxing rights for the 100 largest multinational groups, digital or not. Williams said that the UK does not have a problem with the US proposal for Pillar One, provided that the approach catches the main digital players and does not create significant distortions.
The UK continues to be willing to give up its digital services tax once an international agreement on the issue is reached. However, Williams stressed that the UK is not up for giving up its sovereignty on tax measures. Any restrictions on unilateral measures in a Pillar One deal would need to be carefully constructed.
Regarding Pillar Two, the UK would accept a global minimum tax as part of a package deal with Pillar One. However, the terms of such an agreement would have to take into account the unpredictability with respect to what details can make it through the US Congress.
The current US global minimum tax, under the global intangible low-taxed income (GILTI) provisions enacted in 2017, imposes a 10.5 percent rate with respect to a portion of US multinationals’ foreign earnings. The Biden Administration has proposed increasing the rate to 21 percent and applying that rate on a country-by-country basis, rather than allowing companies to blend foreign earnings from high- and low-tax jurisdictions to reduce the overall effective rate.
Williams suggested that negotiations setting the rate for a global minimum tax will depend not just on the rate to which the US ultimately moves GILTI but also whether the US Congress adopts the proposed change to country-by-country calculation. Otherwise, if the UK and others adopt a minimum tax with country-by-country calculation, the rate will not be directly comparable with a US one that continues to allow blending to reduce the overall effective rate.
“We may have to be in a world,” Williams said, “where we say, well, if the US sticks with the GILTI rules operating globally, the minimum rate is X. But, on the other hand, if the US does move to operate the GILTI rules … on a country-by-country basis, then it’s possible to conceive of a higher minimum rate.”
Doug Connolly
Doug Connolly is Editor-in-Chief of MNE Tax. He has more than 10 years of experience covering tax legal developments, previously working with both a Big Four firm and a leading legal publisher. He holds a law degree from American University Washington College of Law.
Latest posts by Doug Connolly (see all)
- OECD transfer pricing guidelines get first update in five years - January 20, 2022
- EU’s path forward on global minimum tax is under debate - January 18, 2022
- Switzerland will implement global minimum tax by constitutional amendment - January 13, 2022
- UK sets out approach to global minimum tax implementation - January 11, 2022
- OECD’s ‘complex’ minimum tax rules have ‘major policy issues,’ BIAC says - January 7, 2022
Be the first to comment