Corporate Tax

The World Company Tax Price: Crypto Savior or Killer?

At a meeting in London earlier this month, the G7 finance ministers – US, Japan, UK, Germany, France, Italy and Canada – unanimously agreed to create the framework for a global corporate tax rate.

The framework provided for a “two-pillar principle”. The first pillar ensures that companies that achieve a profit margin of 10% are subject to the tax rate. The second pillar ensures that countries levy a minimum tax rate of 15%. Under all of this, the new rules focus on where the profit was made, rather than where the company was based – the idea is to discourage companies from moving money around the globe or providing services in one country from another that is cheaper is to offer tax rate.

Does legal mean moral?

The concept of a global corporate tax rate is nothing new. With companies like Google, Amazon, Facebook, and Apple running billions in revenue and paying little to no tax, regulators and governing bodies have sought to close the loopholes of these large multinational corporations.

The practice of making money in one country and then moving it to another to pay less tax or to avoid them all together is mostly perfectly legal. Although in practice it can raise some moral questions. This practice has only really come into the spotlight now as international and digital companies move more funds around the globe than ever before. Apple, for example, holds more cash in reserves than the total gross domestic product (GDP) of many nations. However, in most countries it pays less tax than the average domestic business.

Closing loopholes could be a good step for domestic governments. The UK, for example, will gain an additional £ 14.7 billion for its economy over the next decade – massive help given the huge impact of the global COVID-19 pandemic.

But what about cryptocurrencies?

With the inevitable introduction of these new pillars, we have to ask ourselves: how could this affect crypto businesses?

At its core, crypto is really international. It also moves money around the globe and is aimed at an international audience. As a result, just because of the way it works, it falls under the new international corporate tax rules, which many believe will be. (Note: “International companies” literally means companies that have multiple locations or operate in multiple countries.)

The implementation of these new rules has yet to be confirmed, and what exactly this will look like is not yet certain to many. The feeling is that international crypto companies have to do one of two things: either be willing to pay a 15% domestic rate globally, or move their physical location to a truly international location. That would of course have to be more than just a company headquarters.

In reality, we would see the deaths of companies based in locations like the Seychelles or the British Virgin Islands with real offices in New York (you know who they are). Likewise, the “service company” based in the United States with the “main company” based abroad may also be subject to some changes. In the future, it is possible that we will see companies that are entirely off-site, such as the British Virgin Islands, with the team physically doing business there.

It’s not that universal

The other side of this is that while the G7 accounts for a large chunk of global GDP, there are still massive actors like India, China and Russia who are not included in these new rules. You didn’t even sign up for her. And it’s hard to tell if they’ll even adopt her. Likewise, countries like Singapore and Ukraine have excellent tax regulations for companies that want to do business there easily with minimal presence.

The right to set your own tax rules is a massive sovereign right. Countries will not want to give that up anytime soon – especially countries that depend heavily on income from start-ups and companies doing business on their otherwise unknown shores. Also, make no mistake that this whole process was driven by the US. The US knows they are losing money by allowing companies to move funds out of the US in a corporate setting. This is something they were keen to prevent with increasingly cumbersome tax laws for individuals and businesses. Countries like Russia don’t want to look like the US is pushing them around

For now, the best any crypto company can do is watch these taxes evolve and implement. If taxes are massively arrogant after the new rules are in place, many may want to look for new locations and physical offices – especially those that generate more than 10% profit and especially those that are in a location with good taxes but have theirs physical seat at a different location. Nobody needs to panic now. However, your five or ten year plan may want to make some adjustments in case the worst happens.

Finally, it should always be remembered that tax evasion is illegal and should not be carried out. Tax avoidance, on the other hand, is just smart planning and it is always worth spending time and money getting it right.

This article is for general informational purposes and is not intended and should not be construed as legal advice.

The views, thoughts, and opinions expressed herein are those of the author alone and do not necessarily reflect the views and opinions of Cointelegraph.

Cal Evans is an international technology lawyer from London who graduated from Yale University in Financial Markets and has experience working with some of the best-known companies in Silicon Valley. In 2016, Cal left a top 10 California law firm to form Gresham International, a technology law firm specializing in legal services and compliance that now has offices in the US and UK.

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