The G20 leaders have reached an agreement on a “more stable and fairer international tax architecture” with a plan that includes a minimum global tax rate of 15 percent, raising concerns that foreign direct investment (FDI) inflows into countries like Without favorable terms, China could decrease tax rates.
However, experts said that a global minimum tax rate is unlikely to hinder the flow of foreign investment into China, given that the country’s enormous market size, optimized allocation of production elements, and stable expectations play a bigger role in attracting foreign capital.
The G20 said in a communique on Saturday that it had approved components of a tax reform that included the reallocation of multinationals’ profits and an effective global minimum tax “after many years of discussion and building on the progress made over the past year”.
The plan still needs the approval of the national heads of state and government at the G20 summit in October. Reuters reported that the global minimum corporate tax would be at least 15 percent to deter multinational corporations from looking for the lowest tax rate.
Cong Yi, a professor at Tianjin University of Finance and Economics, told the Global Times on Sunday that some developed economies – led by the US – have pushed global tax reform for fear that multinational corporations will relocate industrial chains to economies like China. where the effective corporate tax rate for some high-tech companies can be less than 15 percent due to tax breaks and exemptions.
Wei Jianguo, former China’s vice-trade minister and deputy director of the China Center for International Economic Exchanges, said it will be difficult to stop FDI flows into China with a global minimum tax rate as the overall size of a market has increased by the most important standard for investors.
“Our surveys in provinces such as Guangdong in southern China and Shandong in eastern China show that foreign investors believe that a country or region can optimize production factors as far as possible, far outweighing the favorable tax rates,” Wei said, noting that South Korean companies recently focused on investing in Shandong because they believe the best allocation of land, capital, technology and talent.
In addition to the country’s huge spending market of 400 million middle-class consumers, its new double-circulation development model offers stable prospects for foreign investors, Wei said, noting that foreign direct investment in China will maintain double-digit growth.
China’s actual FDI use rose 35.4 percent year-on-year to 481 billion yuan ($ 74.2 billion) in the first five months of the year, data from the Department of Commerce (MOFCOM) showed. MOFCOM spokesman Gao Feng said at a press conference that the rapid growth of foreign investment in China, especially the surge in foreign start-ups, underscores the continued confidence of foreign investors in China’s economic prospects and its enormous market potential.
Cong said that instead of relying on favorable tax policies to attract foreign capital, China needs to further improve the domestic business climate, promote investment comfort and reduce costs.