The G7 announcement of their decision to push for a global tax deal to put an end to international tax competition has been interpreted as a landmark deal for the global economy. In a world where borders have fallen and globalization has not lost its momentum, getting a tax order is a normal next step. The pandemic has highlighted the importance of state intervention in markets and the economy, with huge packages of budgetary and monetary support keeping the private sector alive, but money is needed for states to play a role.
But implementing the G7 agreement is proving to be a difficult task. Globalization has also led to a world that does not obey the orders of the powerful. Negotiations are under way in Paris this week to move the deal forward (next stop is the G20 summit in Venice), but a number of countries, including China, India, EU member states (Poland, Hungary) and emerging economies raise objections. And the countries-tax havens appear the exact opposite. The common denominator of those who react is that taxation is a development tool. This is the position of Cyprus as well. The Cypriot company also benefits from the corporate tax rate of 12.5%. Hungary and Poland, which request that real economic activity be exempted from a minimum tax rate. These are two developing industrial countries and for them taxation is an incentive to attract investment in their industry. They are interested in attracting innovation and not just companies for tax purposes. Hungary currently has the lowest tax rate in the EU, just 9% (in Poland it is 19%) and is not treated as a tax haven, as Cyprus is unfortunately treated.
The position of the Hungarian Ministry of Finance is that all countries should have the right to make sovereign decisions regarding the taxation of “substantial economic activities carried out in their territory taking into account the level of economic development and other relevant factors”.
An FT report records the objections of many states to the talks in Paris. Ireland, Switzerland and Barbados appear to be opposed, according to sources familiar with the discussions. The poorest countries, including African countries, do not see much benefit for themselves and threaten to block the deal if they do not receive a larger share of the multinational tax.
What is the position of Cyprus in all this? The decision for a tax reform has been made and we must look with open mind at the place of the country in the world.