Many countries worldwide seek to avoid the loss of tax revenues to what has become commonly known as low-tax jurisdictions or tax-havens.
Perhaps this is an unintended consequence of the Covid-19 pandemic or perhaps not, maybe due to technological advancement moving people, businesses and money more accessible than ever before. But, for sure, it is a mechanism to address budget deficits and could result in less of a global footprint/diversification.
From an investment point of view – risk mitigation is based on the principle of diversification. Unfortunately, we actively create an environment with a proverbial glass ceiling; this could have adverse and unintended consequences.
We see an apparent movement on the part of many jurisdictions to a global minim tax concept. This means that the global minimum tax rate would apply to overseas profits.
Governments could still set whatever local corporate tax rate they want. Still, if companies pay lower rates in a particular country, their home governments could “top-up” their taxes to the minimum rate, eliminating the advantage of shifting profits.
According to Centuro Global, “The OECD said last month that governments broadly agreed on the basic design of the minimum tax but not the rate. Tax experts say that is the thorniest issue, although the G7 accord creates strong momentum around the 15%-plus level.”
Other items, such as the inclusion of investment funds and real estate investment trusts, are still being considered.
For sure, not only will this new regulation have a significant impact on jurisdictions whose sole attraction were their low tax rates. But also on various businesses and investors having to maintain sometimes expensive and complex structures with minimal benefit.