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G7
Opinion
SCMP Editorial
Editorial
SCMP Editorial

Global corporate tax rate offers chance for world to cooperate

  • Proposal may hurt some more than others, but the upshot is that it will help ease some of the economic irritants that plague ties between nations

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The new tax arrangements agreed by G7 could impact Hong Kong, where foreign companies are treated to a range of concessions. Photo: Felix Wong
SCMP Editorial
Editorials represent the views of the South China Morning Post on the issues of the day.
A minimum global corporate tax rate has been one of US President Joe Biden’s key policy drives. The ambitious tax plan has made a major step forward, with the rest of the Group of Seven advanced economies jumping aboard at a meeting of their finance ministers. Its next hurdle will be to seek broader agreement at a meeting of the G20 next month in Venice. Quite simply, the plan requires global cooperation to work. As the world’s second-largest economy, China has an opportunity to play the honest broker in leading the G20 conference, which includes developing economies with different priorities.
Many independent analysts have observed that China already has a much higher corporate tax rate than the 15 per cent minimum proposed at the G7 meeting; and it is already a magnet for foreign investors and companies. This is an opportunity for Beijing to participate in international economic governance and share common ground with Washington after locking horns on issues from trade and foreign policy to intellectual property and human rights.

While China’s global corporations may end up paying more taxes overseas, the country has fewer stakes involved in the proposed global tax regime than the United States and the European Union. Biden is trying to push through a domestic infrastructure stimulus plan worth almost US$6 trillion next year, and he plans on taxing US corporations to help fund it. The plan will not work if more US companies make the exodus to low-tax jurisdictions and tax havens.

Also, Washington has threatened Brussels with retaliatory tariffs if its member states impose unilateral taxes on US tech giants and other multinationals that have most frequently exploited loopholes in the EU, especially in low-tax Ireland. The new plan will most affect low-tax countries and tax havens such as Bermuda, British Virgin Islands, Cayman Islands, Ireland, the Netherlands, Luxembourg, Singapore and Switzerland. It has been calculated that a third of all of the world’s foreign direct investment from 2008 to 2018 flowed through those places. Self-styled “global and borderless” Big Tech has been among the most aggressive in exploiting those jurisdictions for tax shelter.

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A global tax regime would remove a major irritant between the US and the EU. Hong Kong, though, with its comparatively low tax rates and various concessions to industries, may be more affected by the proposed rules than the mainland. Financial Secretary Paul Chan Mo-po has warned that some current concessions may be affected by the proposed tax plan. However, the existing corporate tax rate at around 16.5 per cent would not present much need for adjustment.

In any case, Hong Kong should strive to improve domestic economic efficiency and facilitate cross-border capital flows rather than compete in a race to the bottom for low taxes.

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