China quiet on global minimum corporate tax rate backed by G20 as questions over Hong Kong’s tax-haven status arise

Hong Kong is the world’s seventh-largest tax haven, and the largest in Asia

Analysts say China’s strained relationship with the United States could also come into play in international negotiations on a global tax deal

4-MIN READ4-MIN

Group of 20 finance ministers and central bank governors meet in Rome this week. Photo: AFP

Published: 9:28pm, 8 Apr 2021Updated: 3:13pm, 2 Jul 2021

While Beijing is unlikely to have a major problem with Washington’s call for the world’s leading economies to agree on a global minimum corporate tax rate, China is nevertheless likely to take a cautious approach in international negotiations given the continued high level of tensions between the two top economies, according to Chinese analysts and academics.

A bigger concern for China would be the impact a global minimum corporate tax could have on Hong Kong – the seventh-largest tax haven in the world and the largest in Asia, according to an analysis published earlier this year by the Tax Justice Network, a tax advocacy organisation, ahead of Singapore at number nine.

The minimum corporate tax concept has potential risks for Hong Kong, through which some 70 per cent of foreign investment from the Chinese mainland is now channelled. One of the key advantages for a business to establish itself in Hong Kong and source its mainland-generated revenue is its low tax burden, so forcing Hong Kong to raise its corporate taxes could reduce its appeal as a business location.

China’s strained relationship with the United States could also come into play in international negotiations on a global tax deal. Some Chinese sources argue that Beijing would not cater to America’s latest initiative unless a clear advantage could be gained, such as a reduction in US tariffs on Chinese imports.

Ministry of Finance officials did not take questions on the subject at a press conference on Wednesday. And the ministry did not reply to a faxed inquiry from the South China Morning Post about the country’s position on the issue.

Nevertheless, the new US proposal has vaulted the tax issue to the top of the global policy agenda, sparking cautious optimism that a deal can be reached in the coming months.

G20 finance ministers and central bank governors endorsed the overall concept in a statement after their meeting on Wednesday, saying they “remain committed to reaching a global and consensus-based solution” by the middle of this year.

Pascal Saint-Amans, director of the Centre for Tax Policy and Administration at the Organisation for Economic Cooperation and Development (OECD), said there have been negotiations on a global taxation scheme since 2012, with 139 countries now participating. Even though China is not a member of the OECD, it is “fully involved”, he said.