G-7 Nations May Want to Copy U.S. Tax Cut, U.K. Official Hints (1)

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By Ben Stupples

A senior U.K. official has suggested that some of the world’s largest economies could follow the U.S.’s move to slash its corporate tax rate, highlighting the effect of the country’s sweeping reforms.

“Countries will most reflect on the U.S. tax rate cut, particularly those with rates distinctly above 26 percent,” Mike Williams, the U.K. Treasury’s director for international and business tax, said at a July 9 conference in London. “Some quite significant large economies” fit this category, he added.

Four members of the Group of Seven forum of the world’s largest industrialized economies—including Germany, with 30 percent, and France, set at 33 percent—have corporate tax rates above 26 percent. Signed into law December, the 2017 U.S. tax act ( Pub. L. No. 115-97) has forced businesses to reassess their finances after it cut the federal U.S. corporate rate to 21 percent from 35 percent.

Since then, pressure has been mounting on countries in Europe and elsewhere to keep tax rates competitive.

The actual U.S. corporate rate is about 26 percent, due to the extra levies that its states impose on companies, Williams said. “However you look at it, it’s clearly very significant, and it takes the U.S. closer into the international mainstream, which is probably a good thing,” he added.

Alongside the corporate tax rate reduction, the act introduced a global intangible low-taxed income (GILTI) scheme that effectively enforces a minimum levy on U.S. companies’ offshore income.

GILTI Interest

Williams’s comments at the conference, organized by the U.K.’s Institute for Fiscal Studies think tank and the European Tax Policy Forum, come as countries also take note of the U.S.’s GILTI scheme. The scheme’s minimum 10 percent tax aims to reduce the incentive for U.S. companies to hold their lucrative intellectual property, such as trademarks or patents, outside of the country.

John Peterson, head of the OECD’s aggressive tax planning unit, said July 2 at a University of Oxford conference that “other countries are interested” in the scheme as part of their attempts to refine the taxation of internet-based businesses like Facebook Inc. and Alphabet Inc’s Google.

Some countries “are looking at it and thinking, ‘Can we get away with the same thing?’” he told Bloomberg Tax at the Oxford University Centre for Business Taxation summer conference. The measure “has fundamentally changed the conversation” on new taxes for digital companies, he said.

No U.K. BEAT

While GILTI’s minimum 10 percent tax makes it less appealing for businesses to hold intellectual property offshore, businesses can alternatively receive a deduction for this category of income through the U.S. tax act’s scheme for foreign-derived intangible income (FDII).

Alongside these measures, the U.S. also enforced this year a base erosion and anti-abuse tax (BEAT) that limits how much businesses can use cross-border payments to shift profits to low-taxed jurisdictions.

“With the BEAT and the FDII provision, they are freely acknowledged by U.S. tax professionals to discriminate against foreign-owned groups with foreign activities,” Williams said.

“There, I think what I can say is that the U.K. remains committed to free trade and against protectionism. I don’t think they are the sort of measures we’d want to copy,” he added.

To contact the reporter on this story: Ben Stupples in London at bstupples@bloombergtax.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bloombergtax.com

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