The Financial Times reported this weekend that the UK is not endorsing the latest intervention by the new US administration in the OECD discussions surrounding the reform of the international tax system.
By way of a quick recap, the OECD's current proposals (the Blueprint) are for an additional market-based taxing right focused on profits from automated digital services and consumer facing businesses (Pillar One) and a global minimum tax rate (Pillar Two) in each case affecting larger MNEs.
The US counter-proposal is for a market-based taxing right imposed on the top 100 global companies (irrespective of sector) and a global minimum tax rate of 21%. The Biden administration needs agreement on the increased global minimum tax rate to underpin its domestic tax reforms (and in particular its increases in US corporate tax rates). The price for its support is to shift the focus of the additional taxing right in Pillar One away from US technology companies.
The original OECD proposals were treated with indifference by the Trump administration and without US involvement would appear to have had little chance of providing a solution to the woes of the international tax system. The intervention of the Biden administration was therefore seen as a bit of game-changer which held out a real prospect of some agreement on reform.
The UK's reaction demonstrates how difficult that process is still likely to be. The UK's own digital services tax - which would have to be ditched as part of any agreement - is only expected to raise about £300m per year rising to £500m in 2024/2025. You might think that a global minimum tax at 21% might be more palatable as the UK seeks to increase its own corporate tax rates, but the shift in the US plans on the focus of the new international taxing right away from digital technology is, for now, proving a step too far.