Finance ministers from Group of Seven countries met in London in 2021 and agreed to back United States President Joe Biden’s proposal for a minimum global corporate tax rate of at least 15 percent. File photo: PROVIDED

Finance ministers from Group of Seven countries met in London on Saturday and agreed to back United States President Joe Biden’s proposal for a minimum global corporate tax rate of at least 15 percent.

If approved by the Group of 20 next month, the plan could enable most governments globally to reap more in taxes but could also have major consequences for the economies of international financial centres like the Virgin Islands.

The VI is among jurisdictions that depend on revenue raised from corporations that locate there to take advantage of their zero percent tax rates, among other reasons.

As a result, some experts are predicting that the G7 plan could pose an
existential threat for such jurisdictions’ financial industries.

“Things look bleak for the palm-fringed, zero-tax territories, such as Bermuda, the British Virgin Islands and the Cayman Islands,” the Economist newspaper wrote about the tax plan on Saturday. “A golden era for the world’s tax havens may be drawing to a close.”

However, other experts think  differently.

Robert Briant, partner and head of the corporate division at Conyers VI, said the main targets of the proposed agreement are massive multinational enterprises like those leading the digital economy, such as Amazon, Facebook and Google, which are not the type of clientele the VI typically serves.

“It’s unclear that it’ll have a dramatic impact,” Mr. Briant said of the G7 proposal. “It’s not imposing tax policy on specific countries, so it’s not going to require BVI to charge 15 [percent]. But rather BVI will be seen as a pass through. What I mean by that is BVI companies [usually] are not used to carry on business in the BVI. For the most part, what we do is to hold entities that carry on business elsewhere.”

UK agreement

The United Kingdom initially had been hesitant toward the agreement, according to The Guardian. The UK has the lowest corporate tax rate in the G7 at 19 percent, though in 2023 it will rise to 25 percent. However, on Saturday, Rishi Sunak, the UK’s chancellor of the exchequer, praised the deal and said the country would benefit.

“These seismic tax reforms are something the UK has been pushing for and a huge prize for the British taxpayer — creating a fairer tax system fit for the 21st Century,” Mr. Sunak said. “This is a truly historic agreement and I’m proud the G7 has shown collective leadership at this crucial time in our global economic recovery.”

Under the new agreement, multinational corporations would have less incentive to shift to low-tax locations, since their profits would be taxed at a minimum rate no matter where they choose to locate.

The Biden administration initially proposed a 21 percent corporate minimum tax in April as part of the president’s $2.2 trillion infrastructure spending proposal, though that was later revised downward to a “floor” of 15 percent.

The broader G20 group of countries is set to consider the proposal when they meet next month, with a final sign-off potentially occurring after a second G20 meeting in October.

The tax plan may find less support within that group, which includes China and Russia, as well as Ireland, which has attracted numerous multinational digital enterprises with its relatively low 12.5 percent corporate tax rate.

Here in the VI, Mr. Briant explained, clients using VI structures solely for tax purposes “is not the bread and butter of our practice. So I personally don’t see a significant impact. But there’s no universally held view, and there are certainly people worried and certainly everyone should be monitoring it. But it’s unclear that it’ll have a dramatic impact.”

Richard Murphy, a chartered accountant who often advocates for tax reforms opposed by offshore financial centres, spoke similarly, telling Reuters that countries like Ireland — which is home to Google’s European headquarters — may have more to fear from the plan.

“The ones that have traditionally served the personal market — that is the palm tree market if you like — theyare by and large going to get  away with this,” he said. “It is the large corporate locations like Luxembourg, like Ireland, like the Netherlands that are really going to be picking up the hit here.”

Meanwhile, BVI Finance CEO Elise Donovan said her agency is taking a wait-and-see approach.

“BVI Finance welcomes all international standards on tax transparency and tax base protection. Having those standards set internationally, and applied globally on an equal footing, is key,” she told the
Beacon. “We look forward to reviewing the G7’s final proposals, monitoring their progress at a G20 level and thereafter amongst the global standard setting bodies.”

Currently, the OTs set their own corporate tax rates independently from the UK. However, they are members of the Organisation for Economic Cooperation and Development/G20 Inclusive Framework on Base Erosion and Profit Shifting, which has agreed on two pillars for tax reform that informed the G7 discussions.

One seeks to establish new rules on where tax should be paid; the other, like Mr. Biden’s plan, aims to establish a minimum level of tax that multinational corporations must pay globally. The Inclusive Framework aimed to develop model draft legislation for global tax reform, guidelines, and international rules and processes by mid-2021. According to Mr. Briant, if the OECD blueprints are used for any potential G20 agreement, the VI should escape any major damage to its business model.

“Based on the OECD blueprint, [it’s clear] that they’re not requiring jurisdictions to impose a 15 percent tax, but rather they’re allowing the top company jurisdiction to impose  additional taxes to make sure
everyone’s business is taxed at 15 percent,” he explained.

Though Mr. Briant said it’s wise to be wary, he ultimately doesn’t believe that offshore jurisdictions are the target of the global tax plan under consideration.

“The devil is in the detail, but the detail is not typically going to be targeting the BVI or offshore generally,” he said.

“With sloppy drafting, there’s always a chance, of course, but there’s a chance we’re going to be hit by a meteor, right?”

Premier Andrew Fahie said in a statement yesterday that  government will continue to monitor the developments and work together with the OECD.

“BVI remains confident of the attractiveness of its brand for international clientele and is keen to continue to support our client base whilst maintaining and expanding on our record as a responsible international financial centre,” he said.