“What’s the quickest way to be a millionaire?” a stary-eyed student once asked Richard Branson. “Be a billionaire and set up an airline.” was the businessman’s fabled response.
I have a soft spot for Branson. I wrote him whilst at college looking for backing for my prototype sports fanzine – somewhere between When Saturday Comes and the Italian Sunday supplement La Gazetto Sportiva.
While he didn’t fund me, he did write back and introduce me to John Brown his publisher who took me on as an editorial assistant on his stable of books and magazines including cricket fanzine Sticky Wicket, Virgin Atlantic’s inflight publications and x-rated innuendo laden comic Viz. Much fun ensued.
Branson’s entrepreneurial prowess and his network of 400 businesses ranging from media to property to space travel have all made him hugely wealthy.
As, say some, has his clever use of the taxation system. Nothing illegal, of course.
He isn’t alone. Other notable billionaires and multi-millionaires – Amazon founder Jeff Bezos, former President Donald Trump, even celebrities like David Beckham and Jimmy Carr – have found themselves under scrutiny for their tax avoidance strategies.
While many mainstream column inches and media minutes were spent covering Richard Branson’s recent ‘low orbit space flight’ and the fact he pipped fellow billionaire Bezos to the punch by a week or two, social media commentary was more focused on what public good could have been achieved with the massive amounts of money these two businessmen had spent on their own private space race.
No wonder tax reform is on the agenda on both sides of the Atlantic.
While much of Europe was focused on Wembley last weekend, the G20 finance ministers gathered in Venice for the first face-to-face meeting since the global health crisis began. With corporate tax reform at the top of the agenda, a landmark proposal to stop multinational companies shifting profits to low-tax havens was endorsed and paves the way for President Biden and PM Johnson and their peers to establish a new 15% global minimum corporate tax rate at the Rome summit in October.
Setting a global minimum corporate tax rate is intended to stop multinationals from offshoring their HQ to countries with the lowest rates. It would change the way companies like Amazon and Virgin Group are taxed, basing their bills on where they actually sell their products and services, rather than simply the location of their headquarters.
The move could also recoup hundreds of billions of dollars for the public coffers at a time when the pressure to pay for economic stimulus, infrastructure and public health is at its most intense.
“Multinational corporations will no longer be able to pit countries against one another in a bid to push tax rates down and protect their profits at the expense of public revenue,” President Biden said.
“They will no longer be able to avoid paying their fair share by hiding profits generated in the United States, or any other country, in lower-tax jurisdictions.”
Of course, there are opponents to these proposals.
The biggest tech companies in the World – Facebook, Amazon, Google’s parent Alphabet, and Microsoft have their international businesses based in these low tax regimes and will privately be lobbying for finance ministers in Ireland, Hungary, Estonia and Luxembourg to block the deal.
It will only take one EU member to object and the whole trading bloc will be bound to scupper the deal as any tax reform in the EU requires unanimous approval.
U.S. Treasury Secretary, Janet Yellon, thinks the EU wrangling will slow the reforms down, but won’t derail them entirely. She has been talking about maybe a 2-year roll out to bring these reforms forward.
Biden will be particularly keen to see progress at pace.
With Chancellor Merkel stepping down after the German Election in September, a void in European leadership may open-up, so moving big legislation like this now is imperative.
Biden’s own election was largely built around his overtures to the working middle class who had felt ‘politics as usual’ had left them behind and had turned, temporarily, to Trump.
Biden launched his ‘Made in America: Tax Plan’ in April this year as part of his wider ‘America Jobs Plan’ and sees these measures as ways to make American companies and workers more competitive by eliminating incentives to offshore investment, substantially reducing profit shifting, countering tax competition on corporate rates, and providing tax preferences for clean energy production.
This G20 deal is a cornerstone of that policy.
Recently, British Labour Party centrist and Shadow Chancellor Rachel Reeves, has also adopted a similar tone, looking to prioritise firms who are based in the UK and operate in the UK in public procurement contracts. This policy has put pressure on Britain’s Conservative Government to act.
UK Chancellor of the Exchequer, Rishi Sunak signed up to the G20 deal but had also announced in his domestic budget that he was raising UK Corporation Tax from 19% to 25%, recognising the need for the UK to fill its treasury chest to combat COVID.
Free marketers like Branson and Bezos may argue that having competition in corporation tax is healthy and serves as a check on domestic economic policy – making it harder for governments to raise taxes on business if there is a cheaper option for them to flee to instead.
And many who supported Brexit bought into the idea that by leaving the shackles of the European Union the U.K. would be free to set its own rates and position itself as a globally competitive island – a North Atlantic version of Singapore.
But who does that serve? Certainly not the employees of these companies who may be unable or unwilling to up sticks to the cheapest tax regime every couple of years.
Nor the citizens of those nations who purchase these companies’ digital services but miss out on any taxes which would have been collected to support the social services they expect. Who knows, maybe the next race between Branson and Bezos is to be the first to establish an intergalactic headquarters orbiting above the earth to avoid such earthly nuisances as corporate taxes entirely!