John Baron MP: The UK, not the G7, should be making decisions on UK tax

After recent proposals for a global minimum of 15 per cent corporation tax, John Baron writes that deciding what a company's 'fair share' of tax is should remain in the hands of countries, not international agreements.

Governments, as with individuals, should sometimes be careful what they wish for. One of the great rallying-cries over the past decade has been that more tax should be paid. Whilst these cries apply to rich individuals, they are particularly directed at the large multinational companies, especially the technology giants, which have no loyalty to any one flag and which consequently shop around the world's jurisdictions to keep their tax payments low – entirely legally. Yet, having just freed ourselves from the strictures of the EU, recent international efforts to close such loopholes may come to restrict the UK's flexibility to promote economic growth.

Propelled by the impetus of 'we're all in this together', the Coalition Government pushed forward measures such as the General Anti-Abuse Rule, and former Chancellor Philip Hammond announced a move towards a tax on technology giants in 2018. These moves have been mirrored by the EU, which is now considering its own form of a digital levy. Whilst these initiatives were forcefully opposed by President Trump, who saw them as an attack on successful American companies by Randian 'moochers' in Europe, President Biden seems to be more relaxed.

This, at least, appears to be the upshot of the agreement just before last month's meeting of the G7 to implement a global minimum level of corporation tax, which has in turn led the EU to delay the implementation of its proposed digital levy. Rather ominously, the Chancellor's press release announcing the international tax agreement vaunted that it followed through on his promise to ensure 'international companies start paying their fair share' of tax.

The concept of a company's – or an individual's – 'fair share' of tax is as baffling as it is nebulous. If politicians believe that people or companies are not paying enough tax, they are fully able to change the tax arrangements to remedy this situation. If politicians create tax codes, at a domestic or international level, that are shot through with loopholes and allowances, they can hardly complain if skilled accountants earn their keep by drawing their clients' attention to them. Whilst tax evasion is an offence, for companies and individuals alike tax avoidance is both legal and rational.

Indeed, a low-tax environment is often one of a country's key selling-points in the global marketplace. With its competitive corporation tax rate and generous tax breaks, the UK has long been a beneficiary of this, and the Republic of Ireland has based a large part of its economic model on this approach. Its 12.5 per cent corporation tax rate is amongst the lowest in the EU – to Brussels' long-running displeasure – and it has had great success in encouraging American businesses to route their profits through the country. The divergence in Ireland's GDP and GNI bears witness to this.

The Irish are therefore looking on with concern at the G7 agreement to implement a 15 per cent worldwide minimum rate of corporation tax. 130 countries have so far signed up to this initiative, and Ireland is in a peculiar club of tax havens, along with Victor Orban's Hungary, in opposing it. From their point of view, it is not hard to see why – an analysis by the Irish Government estimated that an increase to 15 per cent would reduce international investment by 22 per cent.

Ranged against its traditional allies, Ireland's position is looking horribly exposed. Having burnt its bridges with London by making the Brexit process as painful and as difficult as possible by 'weaponising' the border issue, the British Government is unlikely to respond favourably to a request for help. Having used Ireland for their own Brexit ends, the major EU economies seem happy to throw Ireland under a bus, either by agreeing to this G7 plan or by designing their own digital levy. In addition, despite a great show of wearing the Green Jersey, President Biden is the one leading the charge for this global corporation tax minimum.

I share Ireland's concern with this plan. Tax competition between countries is healthy, and it should be down to elected governments to decide what the tax rates should be. In Britain's case, we did not leave the EU only to sign away our ability to set our corporation tax rates via an international agreement. Indeed, flexibility regarding economic incentives remains paramount in this increasingly competitive environment.

Furthermore, minimums have a habit of creeping up, and it is ominous that Bruno le Maire, the French finance minister, is already referring to the 15 per cent rate as a 'starting point'. He has further stated that 'in the coming months we will fight to ensure that this minimum corporate rate is as high as possible'. This is a pretty clear statement of intent, and it will be echoed by others in the EU – especially by those who already regard the UK's comparatively low corporation tax rates as being tantamount to a tax haven. The Government should be careful what it agrees to.