The G7 want to set a minimum corporate tax rate of 15 percent worldwide. The GCC states can benefit from the latest tax ruling, especially since they introduced new taxes over the past five years as part of a comprehensive public finance reform.
Image source: Ador Bustamante / Gulf News
The finance ministers of the wealthy G7 countries have recently committed to a minimum corporate tax level of at least 15% and a better distribution of tax revenues for multinational corporations. UK ministers, for example, called it a “historic deal” while Germany welcomed the “good news of justice and tax solidarity”.
If passed, this decision will certainly have an impact on the economies of countries with low taxes or so-called “tax havens”. It will be submitted to the finance ministers of the G20 countries for final approval in July and, if approved, will have a significant impact on the tax policy of certain countries and the global economy as a whole.
However, there are positive and negative aspects that need to be identified separately by each country, as the proposals are binding on everyone in order to avoid sanctions. But it also gives these countries the chance to prepare for the future, benefit from the new tax and avoid the disadvantages that could result from its introduction.
Speaking of positives, the tax is targeting giant tech companies, most of which are based in the United States. They avoided paying higher taxes despite the fantastic profits they make from operating in several countries.
It is too obvious to ignore that some of these companies have migrated to tax havens or to countries with low tax rates, changing Washington’s position after initially resisting this approach despite European persistence. There is one more positive aspect – the tax will help improve the financial condition of some countries as it will generate additional revenue for the budget.
Irish will pay a price
The negative impact will mainly affect low-tax countries, whose economies have recovered after becoming global hubs for banking and financial services firms thanks to low tax rates, including in some European countries.
Irish Finance Minister Paschal Donohoe said: “Ireland hopes to reach an agreement that recognizes the role of legitimate tax competition for small and medium-sized economies.” Ireland’s economy is known to be thriving thanks to low taxes, which means this decision is a real challenge for Ireland. The downside of this development is that the tax differentials are narrowing but not completely disappearing, as the original American proposal was for a tax rate of 21 percent.
Gulf states are prepared
The GCC countries benefited from low or no taxes, including corporate taxes, and made them a hub for foreign companies. However, the expected decline in oil’s contribution to the global energy balance will have an impact on prices and oil revenues. However, the GCC states can benefit from the latest tax ruling, especially as they introduced new taxes over the past five years as part of a major public finance reform process to support income diversification.
Another fact needs to be pointed out here. Many thinkers and politicians, including Albert Einstein, Mahatma Gandhi and Winston Churchill, have previously called for the establishment of a federal world government to regulate world affairs and enact comprehensive laws and regulations.
Is this global tax the beginning of this phase? Perhaps, but it is very difficult for the G7 alone to implement this plan worldwide. So the tax proposal was directed to the G20, which will make the decision an irresistible force. In addition to the G7, China, Russia, India, Saudi Arabia and Brazil will join with their economic strength and influential position in the world economy.
The author is a specialist in energy and economic affairs in the Gulf.