136 Countries Agree to Minimum Corporate Tax of 15%
The OECD recently announced that it had brokered a global corporate tax deal to stop corporations from avoiding tax. Much has been written about this in recent days. In reality, this deal will affect almost nobody. It will only apply to companies with sales of more than €750m. Any company with sales above this level will have teams of highly paid tax specialists who will find dozens of loopholes.
Global Corporate Tax Deal is Nothing but a Gimmick
The tax-loving bureaucrats at organizations like the OECD don’t seem to understand that when corporate taxes are increased this rise in costs will filter down to the customers. If the tax rises increase the costs of doing business the multi-national companies concerned will raise their prices.
Most countries only apply corporate taxes to trading within their borders in any case. So, an Irish or Hong Kong company generating profits overseas wouldn’t be taxed in their home country on those profits. Therefore higher corporate taxes will make no difference to those companies. I’m sure they’ll make a show of how much more taxes they’re paying to generate positive publicity but it won’t be a meaningful amount in relation to their overall sales and profits. In reality, this global corporate tax deal is nothing more than a gimmick.
Hungary and Estonia Still Holding Out
Amongst the EU countries, Ireland, Hungary and Estonia are the holdouts who wanted to keep their low tax rates for all. Ireland recently caved in and will be forced to increase its corporate tax rate from 12.5% to 15% for companies with sales of more than €750m per year. They will also keep generous allowances for research and development in place. The large tech companies headquartered in Ireland like Google and Microsoft will likely end up lowering their overall tax liability in Ireland.
Like previous OECED initiatives such as the Common Reporting Standard (CRS) this corporate minimum tax deal makes for good soundbites but for anyone in the know, it’ll make no difference. Corporate taxes for anyone conducting global business are largely voluntary. There are so many loopholes available that any company paying the headline corporate tax rate needs to hire a new finance director. Their duty to shareholders is to pay the lowest corporate tax rate they legally can.
International Entrepreneurs Not Affected
Entrepreneurs with global sales will not be affected by this minimum tax deal. All the main offshore jurisdictions have signed up to it. The Cayman Islands, Bermuda, The BVI, and Panama have all given in to pressure. See the full list of countries here. However, as we discussed, it won’t affect any of the main users of those jurisdictions in any case.
These jurisdictions are not interested in the users of offshore structures based in their countries. Even if they were they don’t have the resources to enforce it. How would The Cayman Islands force a company with a nominal headquarters there but trading in dozens of other countries to do anything? They only have the information that the company in question provides voluntarily.
Here are 15 Countries not signed up, at least so far, to this latest attempted tax grab:
Just to be clear we’re not recommending that anybody rush off and set up a company in any of these jurisdictions. For the vast majority, this new minimum corporate tax will not pose any problems. If you’re currently using an Irish or a Panamanian company to legally lower your taxes there’s no need to change anything you’re currently doing. The list is only interesting as it shows the countries that haven’t allowed themselves to be pressured by the OECD into signing up for a pointless global corporate tax deal.