EU forecast to reap extra €50bn per year with UK expected to gain €200m from BP alone
A proposal to be tabled by the US president, Joe Biden, at the upcoming G7 meeting for a 15% global corporate tax rate could reap the EU €50bn (£43bn) a year, and earn the UK nearly €200m extra alone from the British multinational BP, according to research.
Should the tax rate be set higher at 25%, the lowest current rate within the seven largest world economies, the EU would earn nearly €170bn extra a year – more than 50% of current corporate tax revenue and 12% of total health spending in the bloc.
Multinationals exploit gaps and mismatches in the international tax system through a technique known as “profit-shifting”. This involves artificially allocating sales derived in one country to a lower-tax country. One of the ways this is achieved is by companies setting up a subsidiary in a tax haven and registering their intellectual property there. That entity then charges the company’s subsidiaries in other, higher-tax jurisdictions large royalty fees. By charging that “cost” to the market where the majority of revenues are made, profits can be reduced or eliminated, meaning no tax is paid. The royalty fees extracted in this way are booked as profit in the low-tax location. Profits are often shifted to countries such as the British Virgin Islands or Bermuda, which charge no corporation tax.
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