After the Group of Seven nations agreed on a minimum 15 per cent corporate tax rate, IFCs have started to address what they may have to confront. Offshore centers are in a position analogous to a competitive business confronting a "cartel." Several centers impose no corporate tax rates at all.
International financial centers - some of which have very low/zero corporate tax rates - have reacted to the G7 agreement at the weekend to set a minimum corporation tax base of 15 per cent. The move 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 industrialized nations (Canada, France, Germany, Italy, Japan, the UK and the US), agreed 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 it.
International financial centers such as the Cayman Islands, Jersey and the Bahamas have commented on the development.
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.
In the Cayman Islands, the organization that represents its financial sector, Cayman Finance, asserted that its “tax neutral” status remained a key selling point. The Cayman Islands is a British Overseas Territory.
“The Cayman Islands is a tax-neutral jurisdiction and our financial services industry is the world’s leader in international investment funds, which are internationally recognized as tax neutral. Cayman achieves tax neutrality in the simplest and most cost-effective way possible: it does not add another layer of tax on top of what is imposed by other jurisdictions. This enables our financial services industry to do what it does best, facilitating investment throughout the world, thereby driving global economic growth and prosperity.
"Our industry will continue to play this important role, much needed during this time of recovery from a global pandemic, following any implementation of a global minimum tax rate for multinational enterprises. Our tax-neutral regime recognizes 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," it continued.
"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.”