Two international financial centres have reacted to the G7 agreement at the weekend to set a minimum corporation tax base of 15 per cent, which is designed to stop jurisdictional arbitrage on tax, but which also begs questions about sovereignty over tax policy.
As reported earlier this week, the Group of Seven major industrialised nations (Canada, France, Germany, Italy, Japan, the UK and the US), agreed in the UK that businesses should pay a minimum tax rate in each of the countries in which they operate. Time will tell whether such a move will be joined by a wider group of nations, and whether national parliaments will, in fact, endorse the move.
Two international financial centres – Jersey and the Bahamas – have commented on the development, which raises significant questions about the status of offshore centres.
“The reality is that these proposals have been ongoing for months – years in fact – in an attempt to try and tackle large multinational profit shifting, and ensure that, in particular, the big global tech companies pay tax in the places where they do business,” Joe Moynihan, CEO at Jersey Finance, said in a note.
“It was always the expectation that the OECD would take the lead and make representations in summer this year,” Moynihan said. “With the G7 having now agreed a number of measures and a way forward, the next step will be for the measures to be agreed by the G20 to gain widespread international approval. Again, that will be no mean feat, but we can anticipate progress on that later this year.”
He said aspects of the proposals are “encouraging.”
“The proposals are aimed squarely at tackling large multinational companies, particularly large tech companies, which are not a significant feature of Jersey’s business model,” he continued.
“Of course, multilateral changes to the global corporate tax environment will not be without their challenges. These proposed changes have the potential to impact all countries, and it is absolutely our belief as a jurisdiction that any reforms must be implemented on a level playing field, balancing the interests of small jurisdictions as well as larger ones; developed as well as developing countries,” he said.
The global tax environment is hugely challenging and this is a once-in-a-generation opportunity to provide some robust, sensible solutions to improve the international tax landscape and provide consensus and certainty – but it must be done right, consistently and with full agreement at international level,” he said.
The government of the Bahamas issued a carefully-worded statement which, like Jersey Finance, drew back from any direct criticism of the G7’s move, but its reference to the issue of “sovereignty” suggested some pushback.
“Notwithstanding agreement by the G7, the framework proposed by the Steering Group will require the consensus of the 139 countries of the Inclusive Framework on BEPS before going on to the G20 finance ministers for ratification later this year,” it said.
“The Ministry of Finance is conducting an assessment of the impact of these proposals and what implications they may have for the domestic tax regime of The Bahamas. The Bahamas reasserts its sovereign right to determine the tax structure best suited for the ongoing development of the country," it said.