G7 Global Minimum Tax Rate – Good News for Offshore Business?

In June this year, leaders of the G7 meeting in Cornwall, UK announced to much fanfare a historic tax agreement.  What they supposedly agreed upon is a global minimum tax rate of 15% on multinational companies – regardless of where these companies are based. 

Since June, many readers of our portal have contacted us to ask what this means for the offshore sector. Our answer has always been simple: nothing – zip – nada – rien de rien. But given the level of interest in the topic, we should probably elaborate. That is what this article is about.

G7

“This agreement is intended to combat large multinationals’ efforts to move profits to low tax jurisdictions,” says Ashwani Gupta, Director Analyst, Gartner. “If ratified, it will forever change the dynamics of tax incentives because profits shifted to low tax jurisdictions would face incremental taxation.”

Kate Barton, Global Vice Chair – Tax at EY (formerly Ernst & Young) also published an opinion article, entitled:  “The G7’s call for a 15% minimum tax is ground-breaking but a long way from reality” (our emphasis)  Ms Barton appears to be American, but we would like to imagine she has spent some time in England and learned the typical British trait of understatement!

If your name is Steve Jobs or Jeff Bezos, maybe you should be worried about this G7 initiative. But then again, consider the thousands of accountants that the likes of Apple, Amazon, Starbucks, Macdonalds or dozens of other western multinationals employ around the world. A cynic would say, it should be easy enough for them to figure out a way to show in their accounts that they paid 15% tax globally, without actually changing what they pay. And that cynic would probably be right.

Frankly, as logical free thinking people, we couldn’t care less what effective tax these multinationals pay. We can assume they operate within the law in the places they operate. If we like their products and services we will buy from them, if not – then not. If people want to legislate these multinationals out of their countries – let them go ahead. That is democracy at work and is also fine by us. What we don’t like is the completely undemocratic insinuation that somehow paying the minimum tax they are legally required to pay is not sufficient. This simply opens the door for mafia-style shakedowns and arbitrary treatment.

But more of concern to us are our dear InternationalWealth portal readers – people like you. We would like to guess that most of you are “multinationals” in some way – you might have multiple tax residencies or citizenships, and you might have business interests in several or many countries. That is why so many of our readers grew concerned over this announcement of a global minimum tax.

We seriously doubt, however, that you fall into the category of the “multinationals” that the G7 is taking aim at. The target of this initiative is a very political one – multinationals based in the “global north”  – meaning North America and Western Europe, the G7 countries. 

There are plenty of large multinationals from Asia, Africa or Latin America too – but did you hear them being criticized? No, because outside the G7 countries, most people are more focused on actually living life… rather than demanding more money and power for their political elites, which – let’s face it – is exactly what predominantly Western European and left-wing American people are doing here. Presumably they make these demands under the belief that part of what their governments receive in taxes will trickle down to them… but no doubt the governments will retain large “commissions” because governments always like to expand their powers.

Our average clients and readers, however, are small and medium sized multi-nationals, or even one man or one woman multinationals. They are successful business people who legitimately worry about paying too much in tax. 

During the past two years, governments all around the world have been spending money, we would argue, completely recklessly. Although a large part of the population has been vaccinated, there is no likelihood of the pandemic disappearing any time soon. It is very hard to see how governments will ever be able to pay off the debts incurred during 2020-2021, never mind keeping up the spending they consider necessary to keep the pandemic at bay.

Our point here is that if you, dear reader, as a tax paying citizen have every right to worry about public finances and what the future will hold. And you have every right to minimize the tax you pay, provided you act within the applicable laws. In fact, you probably have family, employees and lots of other people who depend on you as a successful businessperson. It is those people to whom you owe a responsibility not to waste money paying unnecessary taxes.

The G7 is a group of 7 countries: Canada, France, Germany, Italy, Japan, the United Kingdom and the United States. The G20 is 20 countries. Even if they agree on a minimum tax rate across all of them, they are not going to be able to block trade with countries outside their cartel. Those countries include Russia, China and literally hundreds of other countries, territories and states around the world that set their own independent tax policies. The chance of getting them all to agree on a global minimum tax is nil.

We have certainly seen in the past pressure on offshore zones and international financial centres. But this new G7 initiative does not target offshore zones at all. Perversely, it might even help offshore zones. Will the G7 benefit more by targeting Amazon or the government of, say, St Vincent and the Grenadines? The answer is surely in the billions of dollars. 

Put simply, what we are saying is: the G7 and G20 have removed their focus from offshore centres and are going instead after big, western multinationals because they see a bigger political and financial benefit in that.

Covid or no covid, the increase in globalization and global trade is unstoppable. The willingness of people to move from their homeland, changing residence and even citizenship, has never been greater. We can attest to that ourselves based on the volume of enquiries we receive for our residence and citizenship consulting

As this trend continues apace, collecting and enforcing taxes will become more and more difficult – if governments want to survive in their current form, they need to think outside the box and find new ways of funding themselves, drastically reducing their reliance on indirect taxes. This is certainly not what the average socialist wants to hear – but they ignore this common sense at their own peril. Government enforcement will increasingly go after the easiest targets – the Amazons of this world – and not after you or us. We can relax and continue to incorporate, bank and live offshore! 

What do you think about this? Are we right or are we crazy? Feel free to comment on this article using the International Wealth social media channels.

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