Lib Dems ponder minimum UK tax on global profits for multinationals

According to an article in the Telegraph, the Lib Dems are discussing plans to introduce a minimum tax charge on multinationals based on their global profits.  The idea is a response to the public backlash against companies such as Amazon, Starbucks and Google which have recently been exposed as paying virtually no corporation tax in the UK, despite huge revenues.

Tim Farron, the party’s president, said “If these companies are structuring their affairs in a way that means they make no profit in the UK, then it’s right to look at the global profit figure – that is made public.”  He said that he thought a rate of around 25% on the profits a business made in the UK would be “about right”, but that discussions were still at an early stage and the details had not been set.  Exactly what Mr Farron meant by this latter statement is not clear – as he himself acknowledged, the reason that the companies are not currently paying tax in the UK is that they are structuring their affairs so that the UK arms are not profitable, siphoning what would otherwise have been UK taxable profits into lower tax jurisdictions, usually through the payment of fees for intellectual property right usage.  I can only assume that he meant that he supported a payment of 25% on that proportion of global profits which correlates to the UK’s proportion of global sales?

Whatever the detail of the proposal, the broad intent is clear. Critics are already arguing that the policy would make the UK less attractive to these global firms, and that a decision to pull out of the UK could lead both to a catastrophic loss of jobs and of the contribution these companies do make to the Exchequer through the significant amounts of National Insurance, business rates and other taxes that they do pay on their operations here.  I think these arguments do have merit but are overstated – the fact of the matter is that the UK is a big and important market for companies like Amazon, and they would not withdraw lightly, although they could certainly scale down some of their operations. 

The other considerable area of uncertainty would be the reaction of the EU (and for that matter the G20) to the introduction of such a measure.  It is by no means clear that they would permit the introduction of a tax and it is a virtual certainty that territories such as Netherlands, Luxembourg and Ireland (all EU members who benefit from setting up multi-national tax planning structures) would be vehemently opposed.

It seems to me that these discussions (which appear only to have tepid support from Vince Cable, who is much more focused on trying to win the Tories round to the idea of his proposed mansion tax) are more an exercise in pandering to public opinion rather than a serious proposition which they expect ever to see coming to fruition.