"There are 2 key proposed changes, (i) tax should be paid where the customers are based, as opposed to where value is created (i.e. Amazon argues their value is concentrated in the US and lower tax jurisdictions like Ireland where their patents and servers are held/based, rather than where their warehouses are based as these are "low value" assets for an intangible business like theirs); (ii) every jurisdiction should levy a minimum tax so places like the Cayman Islands can't set their tax rate at 0 (i.e. tax havens).
These are sensible solutions for a world where increasingly intangible businesses can very easily move their assets (since they are no longer fixed like a factory) to lower tax jurisdictions, and force countries to reduce tax rates in order to lure their business in.
The second of these two principles is not appropriate for Financial Services (FS), and by this I mean asset management and banking, where the core of their business is intermediary. And this is the one they are seeking an exemption from (to be more accurate, the exemption is for the funds, not for the firms themselves, see below).
For example, if your work pays you £100 which you then invest for retirement saving, which will likely be serviced by a FS firm to invest in a fund which invests in a diversified portfolio of assets, with the intention of the value of the £100 increasing over time such that when you are older you can draw on this for retirement, the introduction of the second principle would render this business impossible due to tax leakage, and subject the income to multiple levels of taxation which is unjust.
To follow this, when your work pays £100, you have already paid taxes on this (PAYE and national insurance), you give this say to Hargreaves Lansdown to invest into a fund, currently that fund is likely based in a nil tax jurisdiction or is able to obtain a special deal with places like Luxembourg or Ireland to have nil tax such that the fund itself (an intermediary like a bank account) is not subject to tax. Let's say the money is invested in a UK business, the investment is successful and in one year the £100 becomes £150, again the increase of the £50 is post tax because the UK business would have already paid corporation tax. The fund is then able to return the full £150 back to you on which you will be paying tax on the £50 (capital gains, dividend, interest, whatever the form of the return might be).
If however the location in which the fund is based now also levies a tax (minimum tax rate principle), then your money will be taxed twice, as the fund will now have to pay tax on the £50 return before you receive the return. Even worse if your money is diversified through multiple funds as certain investments (e.g. real property) requires actual presence in the country where the assets are held, the return may be subject to multiple layers of taxation such that when the money eventually goes back to you a large chunk would be taken as tax.
It would be like if you put money in a bank, not only you have to pay tax on the interest the bank now also has to pay tax on your interest. If this was the case you'd start to question why a bank is necessary, maybe you just put your money under the bed since at a bank any return is being absorbed through taxes, this would have a damaging impact on the allocation of investment, alternatively it may force the FS firms to take even greater risk in the hope of higher returns to attract customers.
Hence the exemption request, and is not just the UK this is something most of the countries involved in the discussion agree on."
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