A 15 percent minimum global corporate tax rate, proposed by the United States President, Joseph Biden, has found favour with 130 countries but countries within the Caribbean Community (CARICOM) are expected to agree on and advocate for some special concession.
This was related by Chairman of the Caribbean Community (CARICOM), Gaston Browne, during a recent press conference, held at the end of the 42nd regular meeting of the conference of Heads of Government of CARICOM.
Browne, who is the Prime Minister of Antigua and Barbuda, said that CARICOM Heads of Government would meet for a special meeting before the end of July to discuss the implications of the tax rate, especially on those economies that are considered ‘tax havens’.
Countries in the Caribbean – such as the Bahamas, the British Virgin Islands, and Barbados – are considered tax havens due to their lower corporate income tax rates. This has attracted foreign direct investment and has allowed these economies to garner revenues.
“The reality is that in many of our countries, we have low-tax offshore sectors and the introduction of a 15 percent (global minimum corporate tax) will result in a significant reduction of revenues and that in itself could undermine the development of respective countries and respective peoples,” Prime Minister Browne explained.
But, the global minimum tax rate could potentially disadvantage CARICOM economies if no concessions are made, the Prime Minister explained. As such, a “carve-out” or “compensatory mechanism” for CARICOM countries is expected to be part of the discussions of the Heads of Government, according to the Prime Minister.
Guyana’s Senior Minister within the Office of the President with responsibility for Finance, Dr. Ashni Singh recently stated that Guyana would be engaged in these discussions and work along with the regional body to explore the implications this tax rate would have on the region.
According to him, the imposition of this tax rate is a “very complex issue” and that the local authorities are cognisant of the arguments both for and against the tax rate. But, with the CARICOM meeting yet to take place, he did not want to preempt what decisions would be made since the body is expected to craft a joint statement.
It is unclear whether the compensatory mechanism, as stated by the Antiguan Prime Minister, would garner the support of all CARICOM member states. Some Caribbean countries, like Jamaica, have publicly expressed their support for the tax rate.
Barbados and St Vincent and the Grenadines are two of nine countries that did not come into agreement for the global tax rate. Guyana was not listed on the document as a member of the OECD/G20 inclusive framework for this plan.
Contextually, the Organization for Economic Cooperation and Development (OECD) which is guiding the negotiations on this minimum tax said that it would generate about $150 billion in additional tax revenue each year.
This looming imposition signals a wider overhaul of the rules for taxing multinational companies, including a focus on reducing opportunities for tax avoidance, the Wall Street Journal stated. And, with the backing of the 130 countries, the governments of those countries will now seek to pass laws ensuring that the companies headquartered in their countries pay the 15 percent minimum tax in each country they operate.
Distinguished diplomat, Sir Ronald Sanders in a recent column published in a local newspaper, highlighted that the US aimed to exercise its sovereign right to raise its federal corporate tax rate to 28 percent, as part of efforts to tax bigger companies and to accumulate revenues needed for the $2 trillion planned expenditure over the next eight years on building expensive infrastructure in a range of areas.
Sir Sander, however, explained that this high US tax rate might push US companies to migrate to lower tax countries and as such, the US government initially proposed a global minimum tax rate of 21 percent. This proposition, the diplomat contended, could discourage US companies from migrating to tax havens.
Much like the Antiguan Prime Minister, Sir Sanders said that small countries, including those in the Caribbean, have lower corporate tax rates because they need investment not only to compete with larger countries but also to survive. As such, the global tax rate could disadvantage those countries.
As global discussions on this tax rate evolve, it is now left to see what compensatory mechanism CARICOM will suggest and how fervently member states will advocate for its adoption. Otherwise, as Prime Minister Browne said, Caribbean economies may lose out.
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