The question remains to what extent such a multilateral agreement on tax rates can be reached when the level of taxation is often a burning national issue, both when increases and cuts are on the table.

The Group of Seven (G7) countries have agreed to set a floor for corporate tax at 15% and give countries more power to tax digital companies like Apple and Facebook. It remains to be seen whether a larger group of nations is ready to accept such a pact, given the thorny issue of fiscal sovereignty.

G7 countries (Canada, France, Germany, Italy, Japan, UK and US) agreed at a weekend meeting in the UK that businesses should pay a minimum tax rate in each of the countries in which they operate.

In the United States, the rate is 21%, and that rate was reduced by 35% under the Trump administration. Before that, the United States had one of the highest rates in the entire OECD of major industrialized countries. The Biden administration has proposed raising the corporate tax rate to 28 percent and raising the existing minimum tax on foreign profits of U.S.-based companies to 21 percent from 10.5 percent. One concern is that without some sort of global deal, countries with lower rates will attract US companies and encourage corporate tax arbitrage through offshore centers.

The pact – which has not yet been signed into domestic law – raises the question of what is happening with countries like Ireland, a member state of the European Union, which has a rate of 12.5% on commercial income. In Luxembourg, another EU member state with a relatively light corporate tax regime, a 15 percent rate applies to companies with annual taxable income of no more than € 175,000 ($ 213,053) and a rate of 17 percent applies to companies with taxable income above € 200,000. In the UK, which is no longer in the EU, there is a 19% rate and a 25% “embezzled profit tax” is levied on multinational companies that use artificial arrangements to divert profits away. abroad in order to avoid UK tax.

Over the past decades, corporate tax rates have eroded as countries seek to attract foreign investment.

Norman Villamin, investment director, wealth management, at Geneva-based Union Bancaire Privée, said investors will need to adapt and be choosy about the companies they own.

“With the decline in effective corporate tax rates (from 31% to 13% currently) accounting for more than 30% of corporate profit growth in the United States since the turn of the century, companies will increasingly need to rely on expanding margins and growing revenues just to maintain the recent pace of earnings growth, ”he said in a note. “With a fiscal and monetary tailwind, a cyclical recovery in corporate income and margin growth looks likely going forward.”

“However, with the innovation revolution rapidly shifting from a narrow focus on the digital space to accelerating investment in green industrial space and with the shortening of supply chains and national political opposition to With increasing outsourcing, the drivers of a new round of margin expansion are not on the horizon, suggesting that stock selection should become increasingly valuable in the future, ”said Villamin.

The changes proposed by Biden, along with the G7 pact, represent the first reversal of the corporate tax burden since the Reagan tax reforms of the 1980s, he added.

US Treasury Secretary Janet Yellen said the global minimum rate would end the “race to the bottom in corporate taxes and ensure fairness for the middle class and working people in the United States and around the world.” .

“By working with each other on the global minimum tax, governments are protecting their national sovereignty in shaping their tax policy, as the pressures that forced the race to the bottom in corporate tax rates are eased,” he said. she declared. “This effort is far from over, and we look forward to working closely with the G20 and members of the OECD Inclusive Framework process in the coming weeks to finalize a global minimum corporate tax agreement. as soon as possible.”

In the past, some commentators, such as Daniel Mitchell, author of the CATO Institute, have argued that attempts to set lower limits on corporate tax amounted to a kind of “tax cartel” and that it was it is healthy for countries to compete on the fiscal front, otherwise there will inevitably be upward pressure on public spending and tax burdens.

To some extent, the move towards such a minimum rate continues pressure from major industrialized countries to restrict profit shifting and the establishment of tax registration centers in low tax, non-taxable financial centers. tax, which are not all necessarily “offshore” as traditionally understood.



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