21/02/23

BERMUDA: Rotarians hear of the battle in the corporate tax debate.

As published on royalgazette.com, Tuesday 21 February, 2023.

Certain incentives to establish international business in Bermuda could be wiped away should a coalition of countries have their way and establish a global corporate minimum tax regime.

This was the message to Hamilton Rotarians at their weekly lunch meeting at the Royal Hamilton Amateur Dinghy Club.

And Alex Cobham, the head of the Tax Justice Network, a non-governmental organisation in the UK pushing for the implementation of the tax, said that no matter whether the OECD will push its own plan, or wait for action from the United Nations, the European Union remains committed to implementation.

He said Bermuda is best placed to continue working on a future tax framework centred around the corporate global minimum tax, but could very well have to wait, as the two related initiatives play out at the UN and the OECD.

Mr Cobham delivered remarks and fielded questions during the luncheon while on a ZOOM call from the UK.

He said there was no certainty as to how this will all play out, but the EU appear set to make a move in the next few months. Because of that, it is important that Bermuda’s internal discussions announced in the Budget, continue.

He said: “It looks like there will be a coalition of countries taking forward the global minimum tax and that will probably have the effect of making some set of (existing corporate tax) incentives in Bermuda ineffective.

“It probably will also identify the steps Bermuda should take to claim revenue for the operations that are happening in Bermuda, that otherwise will go to another country.

“But it leaves significant uncertainty about what that will exactly look like, what that share of revenues could be, and when the international movement and momentum will be significantly strong that Bermuda will need to have something in place.”

He conceded that OECD member countries appeared to be losing confidence in their own process and have signed up for the UN plan.

In November, OECD countries removed their objections to a G77 initiative. The G77 group of lower income countries has sought for twenty years to have the issue of tax sharing heard and determined at the UN. But they were always blocked by the richer OECD countries.

But that all changed in November when the resolution to begin intergovernmental discussions on creating a UN tax framework, was passed by the general assembly, unanimously.

Discussions of what that framework will look like are to happen this year.

Meanwhile, the UN secretary general, António Guterres, will soon produce a report that could lead to a determination of the kind of formal negotiating process used towards creating such a tax framework.

Mr Cobham believes it could create a set of minimum standards in various areas and also create an intergovernmental tax body – a globally inclusive body that would hold the negotiations, instead of the conversation being dominated by the “rich countries’ club”, the OECD.

He said: “That’s a potentially significant step forward in terms of the fairness of the process. It doesn’t solve the problem. These are still complicated issues and different countries have competing concerns, but it puts it in the UN setting, if it moves forward.”

There is already talk that an agreement can be signed and ratified by 2025.

He said: “This could begin to move relatively quickly. Because OECD members have not been very happy with the OECD process, they have been willing to allow this to move forward with what the G77 has long been pushing for.

“But the OECD process hasn’t finished and so you have these different bits in the air.”