BIZweek n°338 16 avr 2021
BIZweek n°338 16 avr 2021
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  • Parution : n°338 de 16 avr 2021

  • Périodicité : hebdomadaire

  • Editeur : Capital Publications Ltd

  • Format : (260 x 370) mm

  • Nombre de pages : 9

  • Taille du fichier PDF : 2,7 Mo

  • Dans ce numéro : Joe Biden's radical tax proposal.

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VENDREDI 16 AVRIL 2021 BIZWEEK ÉDITION 338 LA TOUR JOE BIDEN’S RADICAL TAX PROPOSAL Should Mauritius and other jurisdictions be worried ? US Treasury Secretary Janet Yellen has recently urged G20 nations to move towards a global minimum corporate tax. What can this mean for Mauritius, other economies, and corporations that benefit from low-tax regimes ? In a recent declaration of war on low-tax jurisdictions around the globe, US Treasury Secretary Janet Yellen has urged the world’s 20 advanced nations to move in the direction of adopting a minimum global corporate income tax. She said the move attempted to reverse a « 30- year race to the bottom » in which countries have resorted to slashing corporate tax rates to attract multinational corporations. « Competitivenessis about more than how US-headquartered companies fare against other companies in global merger and acquisition bids… It is about making sure that governments have stable tax systems that raise sufficient revenue to invest in essential public goods, » Yellen said in a virtual speech to the Chicago Council on Global Affairs. « It is important to work with other countries to end the pressures of tax competition and corporate tax base erosion, » Yellen said, indicating that the US would work with other advanced economies in the Group of 20 to achievethis. The US proposal envisages a 21% minimum corporate tax rate, coupled with cancelling exemptions on income from countries that do not legislate a minimum tax to discourage the shifting of multinational operations and profits overseas. One of the reasons the US is pushing for this, according to international media like Indian Express, is purely domestic. It aims to somewhat offset any disadvantages that might arise from the Biden administration’s proposed increase in the US corporate tax rate. The proposed increase to 28% from 21% would partially reverse the previous Trump administration’s cut in tax rates on companies from 35% to 21% by way of a 2017 tax legislation. More importantly, the US proposal includes an increase to the minimum tax that was included in the Trump administration’s tax legislation, from 10.5% to 21% — the benchmark minimum corporate tax rate that Yellen has propounded for other G20 countries. A day later, the European Commission backed the call, but said the global minimum rate should be decided after discussions in the Organisation for Economic Cooperation and Development — a group of 37 developed nations. The proposal also has some degree of support from the International Monetary Fund (IMF). The targets Apart from low-tax jurisdictions, the proposal for a minimum corporate tax are tailored to address the low effective rates of tax shelled out by some of the world’s biggest corporations, including digital giants such as Apple, Alphabet and Facebook, as wellas major corporations such as Nike and Starbucks. These companies typically rely on complex webs of subsidiaries to hoover profits out of major markets into low-tax countries such as Ireland or Caribbean nations such as the British Virgin Islands or the Bahamas, or to central American nations such as Panama. The US Treasury loses nearly $50 billion a year to tax cheats, according to the Tax Justice Network report, with Germany and France also among the top losers. India’s annual tax loss due to corporate tax abuse is estimated at over $10 billion, according to the report. The problems Apart from the challenges of getting all major nations on the same page, especially since this impinges on the right of the sovereign to decide a nation’s tax policy, the proposal has other pitfalls. A global minimum rate would essentially take away a tool that countries use to push policies that suit them. For instance, in the backdrop of the pandemic, IMF and World Bank data suggest that developing countries with less ability to offer mega stimulus packages may experience a longer economic hangover than developed nations. A lower tax rate is a tool they can use to alternatively push economic activity. Also, a global minimum tax rate will do little to tackle tax evasion. [Sources  : International medias] World Bank warns against ‘high’global tax minimum Published - BBC 8 April 2021 The head of the World Bank has warned world leaders against setting a global minimum tax rate for companies that is too high. In an interview with the BBC, David Malpass said he did not want to see new rules that would hinder poor countries’ability to attract investment. The 21% global minimum rate called for by US Treasury Secretary Janet Yellen « strikes me as... high », he added. Officials said on Wednesday they hope to reach a global tax deal by mid-year. Ms Yellen has said a global minimum tax on companies is necessary to stop a « 30-year race to the bottom », which has seen countries slash rates on companies, in an effort to woo businessinvestments. She is in favour of having all countries agree to a minimum tax rate of 21%. Meanwhile, the US under President Joe Biden is seeking to increase its corporate tax rate to 28%. To US lawmakers, Ms Yellen has made the case that establishing a global minimum tax would allow the US to remain competitive, despite that increase. The UK is also looking to raise taxes on corporations from 19%,up to 25% in 2023, in what would be the first increase since the 1970s. Global tax deal Earlier talks led by the Organisation for Economic Co-operation and Development (OECD) had focused on a minimum corporate rate of 12.5%. While the European Commission this week said it supported the idea of a minimum tax, officials declined to comment on a specific rate. Some countries, such as Ireland, have expressed reservations about the US proposal. The average corporate tax rate globally is about 24%, according to the Tax Foundation. Europe has the lowest regional rate at roughly 20%. Mr Malpass told the BBC he was encouraged by signs of renewed focus on the global tax talks, which have dragged on for years without coming to resolution. But he cautioned that world leaders must consider how a new global minimum tax might fit in with other proposals to tax carbon and digital services provided by tech giants - other priorities for the negotiations. « The critical thing is to have growth for countries around the world, » Mr Malpass said. « Tax rates matter for everyone and so there also needs to be a legal environment that attracts new investment into the poorer countries. » He added that Ms Yellen’s proposal of a 21% global minimum tax « strikes me as a high corporate rate, but this is not my call ». 4 Cont’d on page 5
VENDREDI 16 AVRIL 2021 BIZWEEK ÉDITION 338 LA TOUR State of Tax Justice 2020 United States, Cayman Islands and Singapore are most responsible for the vulnerability of Mauritius It is the first edition of a first-of-its-type annual report (launched in November 2020) on the annual economic and social cost of international tax abuse. It is the first piece of research to present comprehensive estimates of the huge sums of tax each country in the world loses every year to corporate and private tax abuse. The State of Tax Justice 2020 reports that the world is losing over $427 billion (USD) in tax a year to international tax abuse. Of the $427 billion, nearly $245 billion is lost to multinational corporations shifting profit into tax havens in order to underreport how much profit they actually made in the countries where they do business and consequently pay less tax than they should. The remaining $182 billion is lost to wealthy individuals hiding undeclared assets and incomes offshore, beyond the reach of the law. The State of Tax Justice also reveals that higher income countries are responsible for facilitating 98% of all global tax losses, while lower income countries are responsible for less than 2% of all global tax losses. Through the Illicit Financial Flows Vulnerability Tracker, it helps to pinpoint the economic channels and trading partners that pose the greatest risks of illicit financial flows to a country and thereby support policy development and administrative decisions to prevent illicit financial flows. The vulnerability tracker reports the level of vulnerability to illicit financial flows each country faces in relation toeight main channels  : trade (exports and imports), banking positions (claims and liabilities), foreign direct investment (outward and inward) and portfolio investment (outward and inward). Most vulnerable channel – The channel through which the country is most vulnerable to illicit financial flows The top three country partners - are most responsible for the vulnerability that the country is exposed to via its most vulnerable channel. The share of vulnerability contributed by each trading partner is indicated as a percentage. Where does Mauritius stand ? COUNTRY TAX LOST TO CORPORATE TAX ABUSE ANNUALLY EFFECTIVE TAX RATE TAX LOSS INFLICTED ON OTHER COUNTRIES BY ENABLING CORPORATE TAX ABUSE Mauritius $ 62,389,819 3.58% $ 960,961,359 39.24% COUNTRY TOTAL TAX REVENUE LOSS (USD) TAX LOSS PER COLLECTED TAX REVENUE (%) TAX LOSS PER HEALTH EXPENDITURE (%) Mauritius 170,121,791 7.01 57.92 21,833 NAME MOST VULNERABLE TRADING CHANNEL Mauritius Inward foreign direct investments TRADING PARTNER MOST RESPONSIBLE FOR VULNERABILITY United States (19.4%) TRADING PARTNER SECOND MOST RESPONSIBLE FOR VULNERABILITY Cayman Islands (17.0%) SHARE OF TAX LOST GLOBALLY TO CORPORATE TAX ABUSE RESPONSIBLE FOR TAX LOSS IN # OF NURSES’ANNUAL SALARIES TRADING PARTNER THIRD MOST RESPONSIBLE FOR VULNERABILITY Singapore (8.4%) 5

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