If Cyprus is intransigent on tax matters, the G7 should join | Philippe Inman
Cyprus has dared to swim against the sentiment around the world that multinational companies should pay a fairer share of tax.
The island nation has threatened to block EU officials from endorsing Joe Biden’s 15% or more corporate tax plan, which risks a bigger backlash than the loss of a few hundred million dollars. ‘euros in tax revenue if an agreement is signed.
It should not be inconceivable that the Mediterranean island will become a pariah state, accused of having ruined one of the EU’s only chances to act collectively in favor of a global tax system.
Its finance minister, Constantinos Petrides, said tax rates should be “a national competence” and “adapted to the sustainable development of the economy and investments”.
There might be some sympathy for Petrides if the history of investing in the divided southern half of the island, sometimes referred to as Moscow-on-the-Med, was less closely tied to Russia via a favorable tax treaty and significant Russian enclave in the second city, Limassol.
Unfortunately, it is wishful thinking to assume that Brussels would punish such outrageous behavior. The abuse of EU rules by Hungarian leader and recent visitor No.10 Viktor Orbán shows that Brussels is paralyzed by a lack of collective will when internal sanctions are called for.
Hungary charges 9% and Ireland 12.5% on corporate income and Ireland has lobbied against the Biden plan.
It’s easy to see why when the details of the Dublin-authorized tax planning are revealed. Analysis shows that the Irish Department of Finance last year watched US tech company Microsoft allocate $ 315 billion (£ 222 billion) in profits to its Irish subsidiary, only to then see it all disappear in Bermuda, where the business is “resident” for tax purposes.
The Dublin brass subsidiary, which has no employees, sent the profits to Bermuda as part of a three-decade-old tax planning scheme to benefit Microsoft shareholders, most notably founding billionaire Bill Gates.
A fortnight ago Irish Finance Minister Paschal Donohoe said he had “important reservations” on the Biden plan and predicted that Ireland would maintain its corporate tax rate of 12.5% for many years to come.
Great Britain is not immune to hesitation at the American level. Rishi Sunak is said to have joined a rebel group, including Ireland, when Biden’s chief financial officer Janet Yellen suggested 21% as the minimum rate. He should demand a system that replaces, at a minimum, the £ 245million the UK Treasury receives from its new digital services tax.
At the end of the day, Britain should join us. And Ireland too. Dublin has benefited enormously from the overhaul of international corporate tax rules ten years ago by the Organization for Economic Co-operation and Development (OECD), which forced companies to pay more taxes where they had employees and physical assets.
This increased Ireland’s corporate tax revenue from around € 4bn (£ 3.5bn) in 2013 to around € 12bn (£ 10.5bn) sterling) in 2020. Perhaps the next step in tax rules will reduce that income, but it should be clear that being inside the tent is financially better than removing the support poles.
G7 finance ministers begin a three-day meeting today and it is hoped that a tax deal will be reached by then. Critics of EU unanimity say G7 members France, Germany and Italy should abandon the ideal of an EU signing on a deal and sign up themselves .
This must be the way forward if the alternative is a deal sinking on the rocks of Cypriot intransigence.
All eyes are on June 21 after the tertiary leap
A big jump in economic activity in the UK and mainland Europe, where surveys have shown the service sector is coming back to life, and a sharp drop in jobless claims in the US would generally be cause for celebration for investors.
Still, the stock markets were hesitant and in the case of the FTSE 100, they lost 92 points, or 1.3%, to 7,014.
Clearly, the recent economic rebound has already been valued in corporate stocks, and looking ahead, investors are becoming cautious.
While some economists worry about rising inflation if workers manage to exploit labor shortages by raising wages – a phenomenon that will likely only be temporary – most of the city’s analysts are listening. carefully every Boris Johnson statement for signs of doubt over his plan to lift Covid restrictions on June 21.
Investors hope any delay is only short-lived, or they may just panic.