Why the Wall Street Journal snorts on the global minimum tax

How a global minimum tax could affect markets, according to the Wall Street Journal

The US Treasury Department wants a global minimum tax rate of 15%, a requirement reduced from the 21% level it had previously suggested. Should politics ever pass, this could still have a marked impact on international markets – writes the WSJ .

On a nominal basis, the 15% tax would move several countries not typically considered tax havens – Thailand, the UK and Vietnam, for example – towards the positive edge of the situation.

In both Hong Kong and Singapore, corporate tax rates are between 15% and 21%. But in reality, as noted by Citi's Asian economists, their effective tax rates are made considerably lower by various concessions and incentives, and a 15% level would likely still cause problems. Ireland and Macau, with corporate tax rates of 12.5% ​​and 12% respectively, would both be affected even without considering any concessions or incentives.

A number of large American companies make more than 50% of their income internationally, and have both foreign effective tax rates and 2022 effective tax rates of less than 15%, according to an analysis by Goldman Sachs. This list includes NVIDIA Corp. Broadcom Inc., Las Vegas Sands Corp. and Microchip Technology Inc. Analysts see fewer impacts in Europe, where the vast majority of companies already pay over 21%.

Paradoxically, the lower the proposed minimum, the greater the threat to the more obvious paradises like Jersey, the Cayman Islands and the British Virgin Islands. Since these territories have 0% corporate tax rates, they will be hit by a deal on any level, and a lower proposal is more likely to garner broad international support.

The relatively less taxed sectors of the equity market have significantly outperformed since the global financial crisis, which has not gone unnoticed by policymakers. Even if we leave aside the idea of ​​a global minimum tax, the Biden administration plans to double the tax on low-tax intangible global income repatriated from abroad, known as Gilti.

An interesting possibility raised by Danske Bank credit analysts is that a global minimum tax – and higher rates generally – could raise corporate debt levels at the margin, exacerbating the debt financing bias that is already embedded in most. tax systems.

While it is still unclear whether a global minimum tax will ever pass, the worm seems to have turned on corporate tax levels in general. Companies that pay very low corporate taxes – and their investors – should prepare for the impact.

This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/tassa-minima-globale-wall-street-journal/ on Sun, 30 May 2021 06:00:05 +0000.