The ramifications of the G7 nations’ pledge to implement a global minimum corporate tax rate are still being mulled over by policymakers in insurance domiciles around the world.
The finance ministers of Canada, France, Germany, Italy, Japan, the UK and the US are proposing a global minimum corporation tax rate of 15 percent
The reform would not necessarily require low-tax centres to levy a 15 percent rate – instead it would provide a way for other tax authorities to collect a ‘topup tax’ on multinationals that are active in their country.
Such a move might detract from the appeal of locating in some lower-tax jurisdictions among insurance companies that are active in other G7 markets.
In a statement reacting to the G7 news, Curtis Dickinson, Bermuda’s finance minister, said it is critical that any agreed framework to establish a global minimum tax must respect a country’s right to sovereignty in relation to its tax system: “Any outcome that impacts this right is outside the original agreed aims of the OECD BEPS initiative. It also does not give appropriate consideration to the rights and needs of those jurisdictions that lack the economies of scale and resources of larger jurisdictions.”
BEPS is the OECD Inclusive Framework Committee on Base Erosion and Profit Shifting, which addresses international concerns around base erosion and profit shifting. A meeting of the G20 next month (July) in Italy will continue talks on the next steps for BEPS.
Cayman finance CEO Jude Scott said in a statement that Cayman’s tax-neutral regime recognises the importance of taxing the right people, at the right place, at the right time: “Indeed, Cayman’s tax information-sharing commitments enable more effective tax collection by other jurisdictions.
“Taken as a whole, Cayman’s tax neutrality and international commitments protect against tax evasion, aggressive tax avoidance, unfair tax competition and any tax harm to other jurisdictions. That’s a record we are proud of and will continue to advocate for in international standard-setting efforts.”
Ireland, which has a low corporation tax rate of 12.5 percent, fears that the 15 percent regime proposed by the G7 could diminish Dublin’s allure as a low corporate tax domicile. Under the proposed rules, the tax authorities in another market of a company domiciled in Dublin can demand the 2.5 percent balance of tax due relating to the revenues generated in that market.
The issue for Ireland is that if countries did implement the G7 tax proposal to the letter, then multinationals including the big tech firms would have no special reason to stay and could leave Ireland.
Dublin has a sizeable and growing international insurance marketplace. It attracted more companies after Brexit and the loss of EU passporting rights for London-based firms.
Adding uncertainty around the G7 tax proposals, the UK is said to be pushing for a carve-out in the plans for the City of London. According to reports, the UK is among the countries hoping “for an exemption on financial services”, reflecting chancellor Rishi Sunak’s fears that global banks with head offices in London could be affected.
Speaking to the Financial Times newspaper, one British official said: “Our position is we want financial services companies to be exempt, and EU countries are in the same position.”