Britain will seek to exclude the City of London’s financial services companies from a global tax overhaul targeting the world’s most profitable businesses agreed between G7 finance ministers last weekend. The chancellor, Rishi Sunak, is concerned that under a version of the plan put forward by the US president – which involves redistributing the profits of the world’s 100 largest businesses – digital businesses such as Google, Amazon and Facebook will be joined by banks that he says already pay a fair share of tax. The impact of Joe Biden’s proposal could prove to be a significant deterrent to banks running many of their operations from London, compounding the impact of Brexit that resulted in a shift of financial trading to Amsterdam. It is unclear whether all forms of financial services – ranging from banks to investment funds, insurers and hedge funds – would be excluded in a process still to be negotiated. Chris Sanger, the global government and risk tax leader at the accountancy firm EY, said: “There is an assumption by a number of countries that there would be an exception for financial services. The question is now how you manage these exceptions without all the complexities they bring.” Sunak lauded the tax agreement as “historic” when G7 finance ministers agreed the framework on Saturday, adding that it would force “the largest multinational tech giants to pay their fair share of tax in the UK”. However, gaps remain in the deal, with key details still to be hammered out between the broader G20 group of countries – including China, India and Brazil – at meetings in Venice next month. The changes will then be negotiated between 139 countries in a process overseen by the Organisation for Economic Cooperation and Development, with the aim of reaching a final agreement by October. At the heart of the changes agreed so far are two pillars: one enabling countries to tax large company profits based on their sales in that market, and a second setting a minimum global corporation tax rate. The global minimum would be at least 15% and capture thousands of firms and be paid in their home countries. A source close to the G7 talks said the UK and some EU countries were pushing for financial services to be excluded from pillar one, believing the US would agree in exchange for European support on pillar two. “The Europeans don’t want to pull too many companies into this, they’re mostly interested in US tech,” the source added. A blueprint published in October by the OECD, the organisation steering the negotiations, included a carve-out for banks, insurance companies and investment funds as well as extractive industries, including mining and oil and gas companies, from pillar one. It did include plans to target digital firms and consumer-facing businesses. According to the document, the financial services industry is generally required to have “appropriately capitalised entities” in each market jurisdiction, meaning their profits are generally already taxed in each respective market. However, Washington presented plans in April that dropped these exemptions, aiming to prevent the targeting of large tech firms, which are mainly based on its shores. It is the carve-outs for financial services and extractive firms the UK and EU finance ministers were seeking to reinstate. Several banks that operate in London conduct their business mainly overseas. HSBC, the UK’s biggest bank by revenues, generates more than half its income from China, while Standard Chartered operates mostly in Asia and Africa. Most of the banks based in London are foreign owned and it is possible that some of the largest US firms will also be captured by the new tax. A spokesman for UK Finance, which represents the industry, said: “We believe the taxation system should seek to ensure the UK remains an attractive place to do business, is globally competitive and enables the UK banking and finance sector to support the economic recovery.” Washington is pushing in the negotiations for countries, including the UK, to scrap digital services taxes they introduced as a temporary measure until a global tax overhaul could be agreed. Research from the campaign group TaxWatch suggests the UK would lose at least £230m by abolishing the stopgap tax and replacing it with pillar one. However, the Treasury will reap far more from a global minimum tax. The Institute for Public Policy Research thinktank estimates about £7bn a year in extra tax from the minimum 15% tax rate, far outweighing pillar one. A spokesman for the Treasury said the plans would be discussed in further detail at the G20 meeting in July. “The historic global tax agreement backed by G7 finance ministers reforms the global tax system to make it fit for the global digital age, achieving a level playing field for all types of companies. The deal makes sure that the system is fair, so that the right companies pay the right tax in the right places,” he added.