A minimum global corporate tax of 15% could give multinationals the much-needed “social license” they need to remain attractive to long-term investors.
This is what Habib Subjally, who received an A rating from Citywire, says. He is Head of Global Equities at RBC Global Asset Management and manages three funds, including the RBC (Lux) Global Equity Focus Fund.
Speaking to Citywire Selector, Subjally said the move could bring about much-needed systemic policy change that he believes multinational corporations should embrace.
His comments came after the G7 agreed on a minimum global tax rate of 15% that would require large corporations to pay more taxes in the countries where they sell.
“Everyone thinks that multinational corporations will be the big losers and will likely pay more taxes, but we estimate that they will actually be very glad that this comes into play as it gives them the opportunity” “Social License” to to operate in the countries in which they have customers.
‘Our clients have been challenging us to become multinational companies for some time and why they no longer pay taxes in the countries they operate in, and rightly so. And in return, we challenge the CFOs and the chairmen of multinational corporations to do so.
“As long-term owners of investments in these companies, we don’t care so much about how you can save 1 percent on your tax bill this year, but what will that problem do to your reputation and standing in the community for decades to come? It has become a really sore point. ‘
According to the latest factsheet for the RBC (Lux) Global Equity Focus Fund, multinational technology companies Microsoft and Alphabet are the largest single holdings with 5.27% and 4.92% respectively.
While the announcement was both monumental and historic for policy makers, markets have yet to respond, possibly because the proposal is still in its infancy, “Subjally said.
“Remember, this will probably have to go to the G20 and then the OECD before we really understand what we are up against.”
Potential main losers are low-tax countries like Ireland, where the tax rate is 12.5%. Ireland is not bound by the Convention but cannot prevent other countries whose companies do business in Ireland from increasing its tax rate to 15%; This will remove all tax incentives.
However, Ireland’s Finance Minister Paschal Donohoe said he would fight to keep the Irish corporate tax rate at 12.5% until a global OECD deal is reached later this year.
“Many of these multinational corporations have been criticized for making huge sales in a country where many customers pay their hard-earned income for products or services to these companies.
“In the meantime, the same companies aren’t doing much for the jurisdiction where the customers are located. These companies are getting more and more criticism from their own customers for this, and nobody likes that. ‘
The RBC Fds (Lux) Global Equity Focus fund achieved a return of 61.9% in the three years to the end of April 2021. This is while the average fund in the Equity – Global Growth sector returned 59.2% over the same period.