G7's global minimum corporate tax rates regime

【明報專訊】The Group of Seven (G7) countries have reached a historic agreement in principle to introduce a global minimum corporate tax rate, which will be at least 15%. The Hong Kong government says that it will respond to changes in the global taxation system and maintain Hong Kong's competitiveness. In the era of the new economy, multinational giants take advantage of the differences in tax rates between regions to avoid taxation rampantly and pay ridiculously low taxes. Global efforts should be made to curb the practice.

After the Cold War ended late last century, economic globalisation began. In order to attract multinational companies to set up headquarters in their countries, different national governments have been rushing to lower corporate tax rates for decades. The rapid development of the Internet has also led to the emergence of the new economy. Multinational giants in Europe and the US leave their countries in droves to avoid taxation. The governments of developed powers become the greatest losers, as they have lost huge amounts of tax revenues. As for the big winners, they certainly include the many multinational giants and a number of countries and regions that attract corporations with ultra-low tax rates, an example being Ireland. In the US, a survey found that Microsoft, Amazon, Facebook, Alphabet (Google's parent company), Netflix and Apple have paid only US$219 billion in taxes over the past 10 years, accounting for only 3.6% of their total profits, which amounted to US$6 trillion. Take Microsoft as an example. Its Irish subsidiary does not conduct much concrete business. Last year, its profit was reportedly as high as US$315 billion. Since the company is registered in Bermuda, it is not required to pay local taxes according to Irish law. And since Bermuda does not levy a corporate tax, Microsoft's Irish subsidiary is virtually outside the tax net.

Multinational giants in Europe and the US exploit the differences in taxation systems to transfer profits from regions of high tax rates to their financial accounts in regions of low tax rates to avoid tax. A damning indictment of the injustices of the global capitalist system in the 21st century, this practice should be reined in by the international community. The US corporate tax rate is currently 21%. The Biden administration wants to raise it to 28%. Facing enormous resistance domestically, it is uncertain whether the hike can be achieved.

The global minimum corporate tax rates regime is likely to be in place, and the possibility of a deal by the end of this year cannot be ruled out. Hong Kong must be prepared for it as soon as possible. Under Hong Kong's current corporate profits tax regime, the first HK$2 million of a company's profit is taxed at a rate of 8.25%. For profits on top of the HK$2 million, the standard tax rate is 16.5%. The former tax rate is mainly for small and medium-sized enterprises and might not be affected by the global minimum corporate tax rates regime. As for the 16.5% tax rate, it is higher than the global minimum corporate tax rate proposed by the G7 countries, so there is no problem either for the time being. However, it must be pointed out that the minimum corporate tax rate is a complicated subject. To promote the development of specific industries, many countries and regions provide tax concessions for enterprises, and the actual tax rate will be affected.

The global minimum corporate tax rate is a brand new thing, and it remains to be seen how it will be pursued in practice. Hong Kong's simple and low tax system is a major selling point for attracting investment, and it will be a good thing if Hong Kong can maintain it. However, the time when a government can attract investment with low tax rates might be gone forever. The government cannot rely on the city's existing advantages forever. It is necessary for Hong Kong to boost high-tech development and create a better business environment so as to compete with other regions.

明報社評 2021.06.09:全球迎最低稅率時代 港須加緊提升競爭力






■/ Glossary / 生字 /

tax net:the mechanism for ensuring that people and companies pay their taxes



a sign that a system, society, etc. is very bad or very wrong

rein in /reɪn/

to control sth


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