OFFSHORE FINANCIAL CENTRES CAUGHT UP IN G7 TAX DEAL

By Michael Jarvis, London UK

More perspectives are emerging on what the implications could be for the financial services sector for the UK’s Overseas Territories resulting from the agreement by G7 Finance Ministers for a minimum 15 per cent global corporate tax.

This tax will be imposed on large tech companies and other multinationals which base their operations outside their home country to take advantage of lower taxes.

According to the BBC, the deal between the G7 group of wealthy nations - US, the UK, France, Germany, Canada, Italy and Japan, plus the EU - could see billions of dollars flow to governments to pay off debts incurred during the Covid crisis.

The renewed effort to claw back taxes from large global corporations which register their headquarters outside their national borders is driven by the Biden administration, which was pressing for a 21 per cent rate.

The BBC's economics editor, Faisal Islam in explaining that it took "a big compromise to get this across the line", also noted that "how much bite this change actually has will depend on the fine print of ongoing negotiations."

"A process has begun, a precedent has been set. It may or may not end up being transformative, but this moment is historic," he wrote in an analysis of the agreement.

But writing in the publication The Conversation, Professor Atul K. Shah of City University London, posits that the UK is “badly conflicted between offshore tax havens and Biden’s global tax drive”.

Professor Shah who is affiliated with Tax Justice Network as a member of its global advisory board, commented that the gain for the G7 countries “will be to the loss of offshore tax havens like the UK’s overseas territories.”

The Cayman Islands and other OTs object to the label ‘tax haven’ on the basis that it carries negative connotations, preferring instead the term 'offshore financial centres’.

According to Professor Shah, “though no one can force them (the OTs) to adhere to the US proposals, the UK is likely to come under international pressure to bring its satellites onboard.”

He said, “The whole climate has now changed to the point that it is possible to envisage these territories participating in a global minimum rate and also being less secretive than in the past.

“Their consolation will be that they serve not only corporations but wealthy individuals too, and these proposals will not be targeting them. In that sense at least, the offshore tax havens may well just carry on in the same way as before,” he added.

But in a report, Al Jazeera, the middle-based international news and current affairs outlet said “the United Kingdom’s exotic network of “Treasure Island” tax havens could be facing the biggest threat to its existence in half a century after the United States and its allies pledged to squeeze more tax out of large, profitable multinational companies.”

It said the tax deal “is likely to hit the OTs hard after decades of dodging attempts by major economies to claw back revenue.”

DEAL STILL NOT FULLY DONE

However, the G7 global corporate tax deal is still not yet fully sealed.

While its broad outline is expected to be accepted by G7 leaders at their meeting in London this weekend (June 11 - 13), the details still have to be thrashed out at further meetings.

Reuters news agency reports that the next step is a June 30-July 1 online meeting of the 139 countries negotiating future rules for cross-border taxation at the Organisation for Economic Cooperation and Development (OECD) in Paris.

“The countries aim to reach a consensus at the meeting on the details, as much technical work has already been done. Any accord from that meeting will then go before G20 finance ministers for endorsement when they meet in Venice on July 9-10,” it stated.

The OECD and the United States have said a final sign-off might not be possible until a subsequent G20 meeting in October, because the U.S. position may not be firm by July as a domestic tax package will be going through Congress.

A G20 sign-off would mean the world's largest economies will implement it, so its reach would effectively be worldwide, Reuters reported.