Taxing company profits and the G7 agreement – a CIOT explainer

Part of an occasional series in which CIOT tax experts explain the background to topical issues

(Additional content (questions 18 & 19) added 29 July 2021)

1.    How does the UK tax companies’ profits?

Companies pay an annual ‘Corporation Tax’, calculated as a percentage of their profit in a given year. For this year the UK rate is 19%, though for larger companies it will go up to 25% in April 2023.

2. How is a company’s profit calculated?

Profit is what is left after you subtract a company’s costs (raw materials, wages and so on) from their revenue. Profit is calculated after interest is paid on any loans, but before any dividends are paid out to company shareholders.

However, as so often with tax, it’s not quite as simple as that sounds. For various reasons calculating the profits that are taxable in a given year is not as straightforward as looking at income and expenses in one year, or even the profits booked in a company’s accounts.

3. How do taxable profits differ from accounting profits?

Standards that determine accounting profit are concerned with identifying an appropriate share of expenses to match against the year in which the income is booked. So if a business spends £1,000 on a machine that is expected to last 10 years, accounting profits will recognise £100 of costs each year for 10 years to reflect that this investment was expected to generate profits across that period.

However, the tax system wants to incentivise businesses to invest. Therefore it might recognise that the business has actually spent £1,000 to buy the machine, and so if it generates additional income of £200 in the first year, while it has to recognise a profit of £100 in its accounts, from a cash perspective it is still £800 down. Governments tend to give this some recognition in the tax rules. The rules change frequently, as government priorities change, and they also tend to want to incentivise some things (‘green’ investments, for example) more than others. So on average (definitely not in each case), the tax rules tend to allow a quicker write-off of capital expenditure. To take the £1,000 spent on the machine, after three years, the tax rules might have allowed a 45% write-off compared to 30% (10% for each year) in the accounts.

Sometimes, a government may choose to incentivise investment by allowing a full write-off of the expenditure in the year it is incurred, or even allowing more than the amount spent to be deducted for tax purposes – as is the case with the ‘super-deduction’ introduced in the last UK Budget. This allows a deduction of up to £1.30 against tax for every £1 spent, in the year the expenditure is incurred.

The government may also want to discourage certain business expenditure, or consider there is no need for incentives, so the tax law might say that deductions are not allowed at all for such expenses.

In the round, this means that there can often be significant differences between when sales are made, when expenses are incurred, when accounting profits are recognised and when taxable profits are recognised. Many of these will even out over time, and accounting systems have special rules (called “deferred tax”) which recognise that taxable profits might arise earlier or later than when accounting profits have. Deferred tax isn’t tax that is being avoided – it’s simply an accountant’s way of measuring tax liabilities over the longer term. It recognises that tax might have to be paid later – or occasionally earlier – than when profits are recognised, usually because the tax system pays more regard to when cash comes in or goes out.

4. Anything else?

Yes, there are rules which allow a company to carry forward (or back) a loss made in one year to offset – for tax purposes – its profits made in another year.

5. Do other countries do the same?

Yes, broadly. Most countries tax companies on their profits, and over recent decades the systems have tended to become more, rather than less alike. But there is no general international requirement that they should. And each country has its own rate of tax, and its own way of calculating taxable profit.

6. How is it decided where a company pays tax?

There are some international rules which countries generally agree to follow.

The starting point is that companies pay their corporation tax (or its foreign equivalents) in the country where they are ‘tax resident’. ‘Tax residence’ usually means where the company is incorporated, and where it is centrally managed and controlled – typically that’s the same place - but different countries have different rules, based mostly on these two criteria.

However, sometimes a company (lets call it ‘A’) tax resident in one country (X) undertakes some activities in other countries. International rules recognise that at some point, the level of those activities will mean that profits should be attributed to the other countries. That threshold is met when the activity in another country (Y) is enough to constitute a ‘permanent establishment’ of A in Y. Once that point is reached, A pays tax in Y on the profits generated by the activities of the ‘permanent establishment’ in Y.

Those profits are then usually either exempted from tax in A’s country of residence (X) , or A will be allowed to offset the tax payments made in Y against its taxes in X. So, in theory, it shouldn’t be taxed twice on the same profit.

7. What constitutes a ‘permanent establishment’?

Broadly, a company has a ‘permanent establishment’ in a country if it has an office, factory or other fixed place of business there, or if it has someone there acting as an agent of the company with the authority to do business on behalf of the company.

What this means is that the profits of a company active in more than one country are taxed according to where its activities are carried out, but with one big exception: if the activities in any particular country don’t amount to a ‘permanent establishment’, then the profits from those activities get taxed in its country of residence instead. 

This can be important as, for example, activities in general support of sales may not be enough to constitute a ‘permanent establishment’ - so you can’t look at the amount of sales a company makes in a particular country, and expect it necessarily to pay a commensurate amount of tax there.

Often, when companies reach the activity level which means they will have a ‘permanent establishment’ in another country, they will choose to set up another company, tax resident in that other country, to conduct those activities instead. So, in the previous example, A might set up a new subsidiary company (B) in Y – and the taxes in Y would then be paid by B, not A. This has the benefit of (relative) simplicity - each company in the group is paying its taxes in its country of residence.

8. Tell me more about how groups of companies work. Is this what the biggest companies do?

Yes.

Often we talk about a multinational like Apple, Barclays, Coca-Cola and so on as being ‘a company’ – but really these are groups of companies. Often there are hundreds of companies in a group, with one company (a ‘parent’ company) owning the shares of one or more ‘subsidiary’ companies and ultimately entitled to take all its profits by way of dividend. These structures can be very complex sometimes with several levels of companies, each being an ‘intermediate parent’ to one or more subsidiaries but itself being a subsidiary to another parent, often with only the ultimate parent (or ‘Topco’) having shares which are owned by the investors such as pension funds, or members of the general public.

Mostly, tax is calculated on a company-by-company basis rather than for the group as a whole‎. A multinational group may well have several different parts of the business operating in the UK – or other countries - through different companies; e.g.

• A call centre, taking calls from customers on their bills or problems with services provided to them, set up as a company in the UK or somewhere else;
• A “back office” function, providing book-keeping services to the worldwide operations, set up as a separate company;
• A sales team, in a third company (or sometimes, many local companies around the world)

In a set-up like this there will be many transactions happening between members of the group. These will reflect the fact that different activities are taking place in different companies. Even if these companies were all in the UK, each of these companies would have its own profit calculation and tax bill – and the same is true in many countries of the world.

9. Can you assume profits from all the sales of a group of companies in the UK are attributable to the UK operation (and so should be taxed in the UK)?

No. For example, imagine an Italian car manufacturer, who make all their cars in Italy, and do all the research and development in Italy and manage it all in Italy, but have a UK branch office who market and sell the cars to UK customers. Let’s imagine they sell each car for £40,000 and they cost half that to make, leaving the other half of the sales revenue as profit. Is all of that £20,000 profit attributable to the work of the UK staff, or might some of it be due to the engineers, developers, managers and everyone else involved in designing and building the car in Italy?

Or to put it another way, imagine the UK branch office was a completely separate company who signed a contract giving them the sole rights to market and sell the cars in the UK. Would the Italian manufacturer sell them the cars for £20,000 a time, leaving themselves with no profit? We can be pretty sure they wouldn’t. We guess that, say, 80-90% of the profit would be taken by the Italian company who are doing 80-90% of the work and the UK sales company would be left with a profit of at most a few thousand pounds on each car they sell.

Nowadays cars are rarely all produced in one place - which makes ‘transfer pricing’ (see below) more complicated - but with some products that picture is close to reality. For example Scottish whisky producers do most of their work in Scotland, and obtain most of their raw materials from Scotland - and the bulk of their profits are taxed in the UK. More controversially, most of the US platform-based tech giants developed most of the software driving their platforms in the US – typically California – and so the bulk of their profits fall to the US to tax.

Nowadays, both multinational groups and tax authorities will look to undertake a Value Chain Analysis, to allocate the profits across many countries between different functions. However, the ‘Italian car’ example does illustrate the principle that profits on a product not developed in the country of sale are likely to largely belong somewhere else. 

10. What is to stop multinationals from arranging their finances so all their profits end up in parts of the group in low- or no- tax countries?

All countries trying to tax companies’ profits have a range of rules designed to prevent this. The most important and most widespread are called ‘transfer pricing’.

In the UK the principle behind these rules is that the profits attributed to a UK company are those which the UK company would have made had it been a separate, independent company dealing with the non-UK parts of the group on arm’s length terms. Broadly, you look at the activities of the company and determine how much they would have made out of performing those activities for third party customers, not how much they actually did make performing them for the multinational group they are part of.

The same ‘arms’ length’ principle is used in working out how much profit a ‘permanent establishment’ made – you look at the activities of the permanent establishment and assess them on an arms’ length basis.

So the broad general principle that operates at individual company level holds true for the group as well – you look at what activities are conducted in each country and divide the profit according to the value of those activities – except that activities which would not amount to a ‘permanent establishment’ at all get taxed in the country in which the particular company is tax resident. This can be a source of friction where under existing rules some activities which look valuable (such as exploiting a user base of a platform) are not considered to give rise to a permanent establishment.

Even setting aside the problems with defining permanent establishments, transfer pricing is not a simple process. A lot of the time we don’t have arms’ length real world examples to work from when trying to determine prices or allocate profits. The process then involves a fair amount of economic analysis and discussion between companies and tax authorities about what the right division of profit is.

Tax authorities in different countries don’t always agree about how the profit should be split up: they have every incentive to adopt different views. A pharmaceuticals company undertaking research and development in one country, manufacturing in a second, and selling globally (but in particular to big rich countries with massive consumer markets such as the US), might undertake its own ‘transfer pricing’ analysis but find itself challenged hard in three different directions by three or more tax authorities round the world.

11. Are there other ways multinationals can shift profits to cut their tax bills?

Yes, but there are anti-avoidance rules to try to stop them.

Groups can put their own capital into subsidiary companies in low tax countries; and finance companies in higher tax countries by debt (on which interest has to be paid, which can be tax deductible). This is referred to as ‘thinly capitalising’ the company in the high tax country. However, most countries, including the UK, have rules to counter ‘thin capitalisation’, denying interest deductions in many circumstances.

Also, groups can put valuable assets (that they need to use in their businesses) into subsidiaries in low tax countries, financed by their own capital, and that company can charge other group companies in high tax countries for their use, getting tax deductions in those countries. The asset could be the ownership of factory or other working buildings around the world for which rent would be paid; or it could be intellectual property - such as patents or trademarks - used in the business and on which it could charge royalties from other group companies.

This type of activity is countered in two main ways: firstly by the countries out of which these payments are made, either by restricting tax deductions for these payments (interest, rental or royalties, etc) in certain circumstances, or by applying ‘withholding tax’ to them. Withholding tax means that the government of the (normally high tax) country out of which these payments are made obliges the paying company to act as its agent, and to deduct tax from the payment before passing it on to the receiving company in the other (usually low tax) country.

The other main way this activity is countered is by so-called ‘controlled foreign companies’ legislation - if a parent company of the company in the low tax country is located in a higher tax country, that higher tax country can use these rules to tax the parent on the profits of its subsidiary in the low tax country. These are often called ‘CFC rules’, for short.

Most of the larger tax jurisdictions like the US, the UK, France, Germany and so on apply rules of these types to varying degrees, although in many cases they are complex and there are exemptions.

12. Do these rules have much impact on the big US firms?

UK CFC rules have no impact on payments made by a UK subsidiary of a US company to a tax haven - they would be caught, if at all, by US CFC rules. US groups would only come within other countries’ CFC rules if they set up one or more intermediate parent companies in another country, and then the CFC rules would only bite in subsidiaries below that intermediate holding company in the group ownership structure. 

The US CFC rules have been a source of controversy, particularly outside the US. It has been considered by many that it was too easy for US multi-nationals to undertake profit shifting activity into tax havens which escaped the CFC rules. The US relatively recently reformed their CFC rules, to subject profits diverted to tax havens to a level of taxation in the US. Whilst these reforms have been criticised in some quarters for being weak, there have been reports of US companies transferring activities back to the US as a result.

The UK has implemented a wide range of rules to ensure that any payment made from the UK to a foreign related party is a payment for devices/goods genuinely received in the UK. HMRC vigorously police these rules (to the extent that they have even suggested in some cases where the rules are flouted this could be fraudulent or criminal behaviour). Under existing rules, most profit shifting by US multinationals operating in the UK is reducing US taxes, not UK taxes - the payments would be deductible in the UK in any case.

13. Should the system be changed to one where companies are taxed on an allocation of their total profits based on the sales they make in each country?

There would be a few downsides to this.

First of all it would be very hard for one country to switch to such a system without getting the rest of the world to do it too. If countries did so unilaterally it would open up more differences between national tax regimes and so create, rather than reduce, tax avoidance loopholes.

It is far from clear the UK would gain from such a change. We might gain from some of the big US-based multinationals paying more tax here, but we have plenty of multinationals of our own and they would generally end up paying less here. The biggest losers could well be poorer developing countries, especially those reliant on extractive industries such as mining. If they could only tax companies based on their sales to their residents in that country that would bring in a lot less than taxing them on the share of the economic value of the products generated in that country. (Some have suggested extractive industries could be taxed by a different set of rules but that would add complexity to the system.)

The UK itself still generates about 7% percent of government revenues from corporation tax, which is pretty respectable internationally, despite being a very open economy exposed to competition. The percentage is expected to rise when the recently announced rate increase kicks in.

There is also an economic question as to who ultimately bears the burden of taxes ‎on a company - is it the shareholders, the customers, or the workers, and if the workers, is it the highly-paid top management or the people at the bottom? The answer is not certain, but it does seem likely that a shift to sales-based tax would be at the expense of the customers. In other words, by taxing internet-based suppliers more, we could be more heavily taxing ourselves. We have already seen issues around the tech giants passing on the cost of the UK’s Digital Services Tax to their UK customers.

But the strongest argument against is fairness. If a product is invented / developed / mined / refined / built and potentially even marketed and sold all round the world entirely from country X, making use of staff educated in country X, who use country X’s health care system and transport network, often with tax breaks from country X to encourage its growth, and maybe even wage subsidies from country X for its employees, who deserves to be able to tax the company’s profits? Is it country X, or every country that has someone in it who buys a product from the company?

That said, there is a counter-argument that companies also benefit from the legal and physical infrastructure in ‘market countries’ that is necessary to enable consumers to buy their products, so the arguments are not all one-way.

In the past many proposals to try to move the international tax system away from ‘transfer pricing’ and allocate global group profits on the basis of some formula have envisaged three criteria as the basis for the formula - where the group’s sales are made, where its assets are, and where its employees are based. Using employee numbers in the calculation might favour large, fast developing countries like China and India who have benefited from multinationals’ offshoring and outsourcing activities, resulting in large numbers of jobs in those countries. More current proposals, including by the G7, tend to make reference to sales alone. This is perhaps a reaction to the issue of the tech companies where the contrast between sales made in many developed countries and taxes paid there is sometimes extreme. But it is also true that a sales based allocation might tend to favour big developed ‘consumer’ countries like the UK, France, Germany and (in sectors other than tech) the US, whereas some developing countries might gain more from considering employee numbers.

The biggest practical difficulty is that pretty well all countries would have to agree with it - so any country which pushed it hard would risk having to trade off other points which might be more in its interests to get agreement.

14. Are there other changes that could be made?

Some people would like to change the rules to calculate taxable profit based on the group as a whole. Our view is that this would create as many problems as it would solve - for example, what would happen with joint ventures? - and would not affect the fundamental drivers of international negotiations and outcomes on tax.

In our view, the key is for governments to work together, with tax authorities sharing more information and agreeing frameworks that eliminate loopholes like the so-called ‘double Irish’ structure used by at least one of the big tech companies. That is what the G20/OECD ‘BEPS’ project aimed to do. BEPS stands for Base Erosion (companies reducing their reported taxable profit) and Profit Shifting (companies routing their taxable profits to low or no tax jurisdictions). The project was about filling in the gaps in the system. The UK and other countries have tightened up their tax rules over recent years in response to the OECD’s BEPS recommendations.

There is a perceived issue with the internet making it easier than ever for companies to ‘sell into’ a country with little or no presence in that country, and therefore offering little or no taxable base for the government of that country to tax the profits of. Moreover, certain digital products, such as social media platforms, arguably use the population of a country as much as an asset as customers. The users in a particular country create content for other users to look at, comment on and share; they provide personal data which is used to sell advertising space; and they may generate revenue through the platform for the provider if they use a ‘marketplace’ facility. However, traditional tax rules did not recognise a ‘user base’ as something creating a permanent establishment, and this ‘user created value’ could not be taxed in the jurisdiction where the population was present.

Partly in response to this, the UK and some other countries have introduced ‘digital services taxes’. The UK digital services tax (DST) imposes a two per cent tax on the revenues of big companies (worldwide revenue of more than £500 million) operating search engines, social media platforms and online marketplaces to the extent that these revenues (in excess of £25 million) are attributable to the participation of UK users. The UK government has said it will scrap this tax if an international agreement is reached on taxing the digital economy.

How difficult it is to arrive at a fair solution for all has been illustrated by issues with the UK DST; it is applied to fees charged by marketplace platform providers to third party traders using the marketplace – and can be easily passed on to those traders by an increase in the fee - but if the marketplace owner also uses the platform for its own trade, no DST is due from that trade.  

The OECD has continued to grapple with these issues after the BEPS project reported and that is the backcloth to the recent G7 announcement.

15. What is the OECD proposing now?

Despite what was achieved in the BEPS process, much dissatisfaction remained that the international tax system was not keeping up with digitalisation and the increasingly online economy. Technology makes it easier than ever to make sales in a country without having a taxable presence there. That applies widely across the economy but is particularly the case with the US digital giants, and the UK and other big European countries were becoming increasingly frustrated at the fact that these giants paid almost all their tax in the US (where the software driving their platforms had been developed) and (because of the weakness of US CFC rules) paid lower tax overall than might have been expected on the basis of the US headline rate of tax.

The OECD - a group of 38 generally richer developed countries which is the main forum in which the most influential international tax negotiations have traditionally been held - have been developing over the last few years a set of proposals to address this. There are two main elements to these – reallocation of tax rights (known as ‘Pillar One’), and a global minimum tax (known as ‘Pillar Two’). The proposals have been developed through the ‘inclusive framework’, a forum including many countries from outside the OECD as well as OECD members – over 130 countries are involved.

Both ‘Pillars’ are complicated, as might be expected from a process of international negotiation. But in essence, Pillar One involves redistributing taxing rights in favour of countries into which sales are made (or ‘users’ are located), beyond the limitations of the current ‘permanent establishment’ definition, while Pillar Two basically requires all states to put in place CFC rules (see question 11) to ensure that the effective rate of tax in each country reaches a minimum. If the local country does not charge the local company that much, the country in which its parent company is located will top it up to that level. (This would mean a tightening of existing UK rules - there could not be blanket exemptions for genuine trading subsidiaries or treasury operations.)

Both Pillars go beyond simply addressing profit shifting into low tax jurisdictions, and also change the taxation of normal trading activities.

16. What is the US position?

The US initially backed the OECD project but pulled out of talks with European governments (the prime movers of the proposals) in June 2020, saying discussions had reached an ‘impasse’. However, a more positive approach from the new Biden administration has revitalised the process.

The reason for this is that the US Government is planning to increase the US Federal tax rate, and needs support for this in Congress: a global agreement around minimum tax rates could help deliver this. It has less interest in redistributing the right to tax part of the profits of its tech giants to European countries where significant parts of their revenues come from. But European nations and others are bringing in unilateral measures (such as the digital services tax) to tax these anyway; the US would like them repealed and threatens retaliatory tariffs if they are not. The Europeans need some redistribution of taxing rights to justify declaring that these unilateral taxes have achieved their objective and repealing them.

16. What was agreed at the G7?

The G7 - very broadly the largest and richest OECD countries - announced their agreement on a minimum corporate tax rate of 15%, redistributing some profits of the most profitable multinationals (20% of the profits in excess of a 10% profit margin) to be taxed by the countries in which their sales take place (and possibly where users are located – the details are not certain); and the repeal of digital services taxes.

It remains to be seen whether this compromise between the G7 countries can hold good as agreement is sought with the wider group of 38 OECD countries, and the wider world of developing countries including those like China and India represented on the G20.* (They might benefit more from increased taxing rights for countries in which multinationals’ workers work than for those in which sales are made - a formula which, looking more widely than the particular case of the tech giants, favours rich countries with big consumer markets like the US.) There are many details which are unclear and many more countries who need to agree if this deal is going to stick. As just one example, how do you check whether 15% of the profit has been taxed when every country has its own rules for calculating profit and all of these differ from the number in the accounts?

* See questions 18 and 19, below, for an update on this area. 

17. What might it mean for the UK?

‘Pillar Two’ would increase UK taxes on UK based MNCs – for example, the UK could tax UK parent companies of Irish subsidiaries to top up the Irish tax rate of 12.5% to 15% - until and unless the Irish then decided they might as well charge 15% tax themselves. (Currently they plan to resist the whole deal.) It would have little or no impact on the UK tax paid by large US digital multinationals.

There have been varying estimates of how much Pillar Two would raise for the UK. At one extreme, the Institute for Public Policy Research (IPPR) suggested a 15% rate would raise around £8 billion (the IPPR were pressing for a 21% rate which they suggested would raise £14.7 billion). However, we have considerable doubts about these figures. They appear to be based on a data set relying on aggregated data for country by country reports produced by the OECD. This is very raw data, and offers many opportunities for double counting, and including profits which may actually be attributable to investors rather than companies. The OECD’s own estimates of Pillar Two suggest to us that a more realistic estimate would be up to £3 billion. That is consistent with figures produced by Clifford Chance, who, using published accounts from UK multinationals arrived at a range of £900 million - £5 billion.

‘Pillar One’ would increase the taxing rights of the UK over foreign multinationals operating in the UK; in particular profits derived from UK users of US digital companies' products (e.g. Google, Facebook) would be taxed in the UK. There are all sorts of issues though about how many companies (or segments of companies) might be categorised as sufficiently high profit margin to come into scope of the redistribution of taxing rights, and even issues around which country sales are actually made from (if for example advertising targeted at the UK market for digital platforms earned revenue in Ireland)

The UK’s unilateral proxy for Pillar One – digital services tax - raises around £500 million per annum. Presumably the Government would want the Pillar One reforms to raise at least the same amount, before the digital services tax is abolished. Calculations are very difficult, particularly as so little detail is known. One campaign group (TaxWatch), using the published accounts of UK subsidiaries of US multinationals, has suggested the G7 version of Pillar One may raise less than the current combined corporation tax and digital services tax receipts from a number of large US companies. Other commentators have suggested the effect on the UK will be broadly neutral. However, the exact structure of the proposals, and the extent to which users, as well as sales, influence the allocation will be crucial to the outcome.

Additional content added 27 July 2021 

18. How is the proposal faring in gaining wider agreement?  

Pretty well. On 1 July governments from 130 (since increased to 132) countries, operating through the OECD/G20 Inclusive Framework (IF) on Base Erosion and Profit Shifting, signed up to an agreement as follows.  

On Pillar One (new taxing rights) the signatories agreed: 

• The initial scope of the measure will be multinational enterprises (MNEs) with global turnover above 20 billion euros and profitability above 10% (i.e. profit before tax/revenue)  
• Countries will be able to benefit when the MNE derives at least 1 million euros in revenue from there (250,000 euros for countries with smaller economies) 
• In scope MNEs will pay 20-30% of residual profit (defined as profit in excess of 10% of revenue) in additional tax 
• Extractives and Regulated Financial Services will be excluded 

 On Pillar Two (minimum rate) they agreed: 

• The global minimum corporate tax rate will be at least 15 per cent 
• It will apply to MNEs with annual revenue of 750 million euros or more 

The full agreement can be read here. 

A detailed implementation plan will be finalised by October 2021, said the OECD statement. 

The statement concluded: “The agreement reached above indicates the ambition of the IF members for a robust global minimum tax with a limited impact on MNEs carrying out real economic activities with substance. It acknowledges that there is a direct link between the global minimum effective tax rate and the carve-outs and includes a commitment to continue discussions in order to take a final decision on these design elements within the agreed framework by October. Excluding MNEs in the initial phase of their international activity from the application of the global minimum tax will also be explored.” 

G20 finance ministers meeting in Venice a week later signed a communiqué welcoming the ‘historic’ IF agreement and endorsing its key components. They called on the OECD/G20 Inclusive Framework “to swiftly address the remaining issues and finalise the design elements within the agreed framework together with a detailed plan for the implementation of the two pillars by our next meeting in October.”  

Notwithstanding these agreements there are (as the answers to questions 16 and 17, above, indicate) a lot of ‘details’ still to be agreed. 

19. Who is opposed to it? 

Seven of the countries in the Inclusive Framework have not so far signed up. These are: Barbados, Estonia, Hungary, Ireland, Kenya, Nigeria and Sri Lanka. That three EU countries are among the hold outs may present problems for the EU as tax directives require unanimity. 

The finance minister of Ireland, Paschal Donohoe, explained: "I was not in a position to join the consensus on the agreement and specifically a global minimum effective tax rate of ‘at least 15%’ today. I have expressed Ireland’s reservation, but remain committed to the process and aim to find an outcome Ireland can yet support." 

The African Tax Administration Forum – which advises governments on the continent – welcomed that an agreement had been reached, with a spokesperson saying “it is certainly going to make a hell of a boost to [the ratio of] tax to GDP, to total revenues, and . . . to collect what we were never able to collect before”. However the Forum expressed disappointment that its Pillar One proposal that profits should be reallocated by being calculated as a portion of MNE total profits instead of residual profit, had not been adopted., and the spokesperson said that some countries that had signed up had done so with reservations. 

NGOs were more critical still. Alex Cobham of the Tax Justice Network called it “a major turning point against corporate tax abuse” but said it was deeply unfair. “Can a global minimum tax really survive, if it gives so disproportionate a share of the revenue benefits to the richest headquarters countries?” he asked. Oxfam International’s Executive Director called it “no more than a G7 money grab” and "just another form of economic colonialism”. 

(Credit: Answers to questions 18 and 19 draw on reporting by the BBC and FT as well as social media posts) 

John Cullinane, Director of Public Policy, Chartered Institute of Taxation

With additional content from George Crozier, CIOT Head of External Relations, and thanks to Glyn Fullelove, Croner-i, and David Murray, Anglo-American, for help and input