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Emerging Markets

EMs demand more from G7 tax plan ahead of crucial G20 meet

Guzmán: 15% rate is 'way too low'

The historic deal by the G7 for a 15% minimum global corporate tax rate may deliver little benefit to emerging markets, campaigners fear

Emerging economies in areas such as eastern Europe, Central Asia and Africa may see little benefit from the G7’s recent agreement on global tax reform, finance ministers and tax justice campaigners have warned.

At the G7 meeting in the UK in June, the world’s seven richest countries committed to a global minimum tax of at least 15%. US treasury secretary Janet Yellen said it would end the “race to the bottom” in corporate taxation and “ensure fairness” for the middle class and working people in the US around the world.

But the proposal already faces sharp criticism from some quarters. Tax Justice Network’s CEO Alex Cobham said when it was announced that the agreement “shamelessly benefited just [the G7], leaving the rest of the world behind”.

One key issue is the minimum tax rate. Before the G7 committed to 15%, the US had been proposing a 21% minimum rate. Tax Justice Network argued for a minimum effective tax rate of 25%, saying it could generate $780bn in additional global revenues, including $355bn for countries outside the G7. It said a 15% minimum rate would be “deeply unequal” and generate $170bn for the G7 and just $100bn for other countries.

With the G20 likely to set out its stance, some policymakers from developing markets argue that the deal does not allow EM to take its fair share of global tax. And if the agreement is to gain traction at the G20, it will have to overcome fierce opposition some finance ministers within the group.

 

‘NOT ADDRESSSING INEQUALITY’

This week, Argentine finance minister Martín Guzmán told an event hosted by the G24 group of developing countries and the Independent Commission for the Reform of International Corporate Taxation (ICRICT) that the 15% rate was “way too low”.

“There is a substantial risk that the minimum rate will in fact also be the maximum rate that becomes feasible,” said Guzmán. “We advocate not less than 21%, and 25% would be even better.”

Mathew Gbonjubuola, director of the Nigerian Federal Inland Revenue Service, said at the G24 event that though the discussion itself was “historic”, the current proposals “may not be able to address” the “inequality in the current allocation of taxing rights”.

Some argue that even with a higher rate, multinationals would still pay most tax in their home countries; the inclusive framework had been working on alternatives for this issue.

ICRICT’s chair Jose Antonio Ocampo, a former Colombian finance minister, said the G7 deal was “a step forward but not historic”. A historic deal would require multinationals to “start paying their fair share. The agreement has some positives and a major weakness.”

Any agreement will also have to deal with countries that base their growth model around offering companies low taxes. Scope Ratings said this week that the G7’s tax proposals posed a “moderate risk to Ireland’s high growth economic model”. Ireland’s prevailing corporate tax rate is 12.5%.

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