Finance ministers from Group of Seven nations will meet tomorrow in London, where they are expected to back United States President Joe Biden’s proposal for a minimum global corporate tax rate of at least 15 percent. If approved, the plan could enable most governments globally to reap more in taxes but could have major consequences for the economies of international financial centres like the Virgin Islands.
Many multinational companies incorporate in the VI to take advantage of the territory’s zero percent corporate tax rate.
Under Mr. Biden’s proposal, they 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 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.
A week after Mr. Biden’s initial proposal, Secretary of the Treasury Janet Yellen defended it in a speech to the Chicago Council on Global Affairs, saying that as governments worldwide struggle to recover from economic downturns related to measures to combat Covid-19, companies should no longer be incentivised to relocate to low tax jurisdictions.
“It is about making sure that governments have stable tax systems that raise sufficient revenue to invest in essential public goods and respond to crises, and that all citizens fairly share the burden of financing government,” she said.
Local consequences
The VI is among several British overseas territories that depend on revenue raised from multinational corporations taking advantage of their zero percent tax rates. Currently, the OTs set their own corporate tax rates. 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:
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 aims to develop model draft legislation for global tax reform, guidelines, and international rules and processes by mid-2021.
Elise Donovan, CEO of BVI Finance, could not be immediately reached for comment about the consequences of a minimum global tax for the VI.
However, Robert Briant, partner and head of the corporate division at Conyers, pointed out in November that Mr. Biden comes from Delaware, a state with a private company registry that operates much like an offshore financial centre, and would be expected to be well versed in the industry’s needs.
UK support
If the G7 finance ministers back the proposal this week, the broader G20 group of countries would then consider the proposal when they meet next month.
However, among the G7, Mr. Biden’s proposal still lacks support in the United Kingdom, whose territories, including the VI, the Cayman Islands and Bermuda, stand to be among the jurisdictions most affected.
Chancellor of the Exchequer Rishi Sunak has expressed support for the principle but has noted concerns that the policy could lead to economic activity in the UK being taxed elsewhere, 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.
Think tank
The UK-based think tank Institute for Public Policy Research urged the country to support Mr. Biden’s proposal, stating in a report last week that
the UK would take in an additional $20.8 billion in corporate tax revenue each year with a global minimum tax rate of 21 percent.
“The UK is not currently acting as a responsible global citizen,” the report stated. “These proposals, if agreed, would put a stop to this overnight. This is an opportunity for the UK to take the lead on global cooperation towards a fairer and more efficient system of tax.”