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THE BRIEFING Tax


TAXES WITHOUT BORDERS


The OECD has a bold plan to impose a global minimum corporate tax rate of 15 per cent. How will the new levy change the world of tax planning? Alec Marsh asks the experts


YOU WON’T HAVE heard of him, but Pascal Saint-Amans may be the most infl uential Frenchman in the world. As the director of the OECD’s Centre for Tax Policy and Administration, he is the architect of the plans for a global minimum rate of corporate tax of 15 per cent. These are the proposals, you’ll remember, that were enthusiastically embraced by UK chancellor Rishi Sunak and US treasury secretary Janet Yellen at the G7 in Cornwall and then rubber-stamped by the G20 fi nance ministers just weeks later at Venice in July. Speaking after the G20 announcement, Saint-Amans told an OECD podcast that the agreement would generate an additional $150 billion in tax receipts from the world’s largest companies – multinationals with a minimum turnover of Ð750 million. This will be achieved, Saint-Amans explained, by ensuring that the largely ‘untaxed’ foreign earnings of multinationals would henceforth be taxed at an effective rate of 15 per cent, regardless of where in the world the profi ts were booked. ‘The time when companies could use tax havens, low-tax jurisdictions, the time when companies could use aggressive tax planning – very sophisticated schemes, has come to an end,’ declared the Frenchman. ‘They understand that. We are changing the paradigm.’ At the heart of the OECD’s paradigm-shifting tax initiative is a silver bullet that some believe has the names of the world’s offshore fi nancial centres written on it. It’s certainly not an idea that Saint-Amans is doing much to counter. In the same podcast he added that the agreement would ‘neutralise tax havens without necessarily having them implement the agreement’. The structure of the tax agreement means that even if a low- or zero-tax jurisdiction declines to impose the 15 per cent levy, then another country can do it and scoop up the revenue for itself. This is because the country in which a given fi rm is based – in practice where its global headquarters are located – will have the right to impose a top-up tax to ensure that, in total, 15 per cent of global profi ts are taxed.


Over in the British Virgin Islands, a country of 30,000 people which is home to 400,000 registered active companies, they are prepared for ‘collateral damage on a practical level’. But the British overseas territory is also part of the OECD’s inclusive framework of 139 nations and territories negotiating the new tax arrangements. ‘We are monitoring it but we feel any effect will be manageable,’ says Lisa Penn-Lettsome, the executive director of international


business at BVI Finance, the jurisdiction’s industry body. ‘There will be an impact – it’s not that we are directly impacted as such by having to implement the initiative, but because we have MNEs [multinational enterprises] in our jurisdiction I don’t think we are going to see hordes of professionals leaving the BVI or any of the other jurisdictions.’ Part of the reason for the BVI’s sang-froid is the passing in 2018 of Gilti, an American law with an emotive acronym (Global Intangible Low-Taxed Income Act) that sought to recoup taxes from US corporates’ overseas earnings to offset the value of the massive tax cuts made by Donald Trump at home. Thanks to Gilti, a great many US-headquartered fi rms with offshore subsidiaries in the BVI (and other places) have already been hit with a tax rate of 10.5 per cent on foreign profi ts in an attempt to prevent profi t-shifting by the biggest US internationals. Places like the BVI will hope that if Gilti’s 10.5 per cent tax rate didn’t cause a stampede, then the new plan for a 15 per cent rate could also be manageable. Former CEO of Jersey Finance Geoff Cook, now consultant chairman at Mourant, an offshore legal fi rm, agrees. But he’s not convinced the new global tax won’t have an impact on the role that offshore jurisdictions such as Jersey, the BVI or Cayman play in the world’s fi nancial plumbing: he believes some companies may decide that if their profi t margins are low, ‘they might actually decide that 15 per cent is more than they want to pay’. As a result, there could be ‘less activity among trading groups across countries if they were marginal or if they were in a start-up situation and loss-making for a time. They might think about whether that’s viable.’ He thinks the biggest losers will be places such as Ireland, Luxembourg and Hungary – as well as developing countries – that


The time when companies could use tax havens, low-tax jurisdictions,


aggressive tax planning, has come to an end


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