Who are the winners and losers from the global corporation tax agreement?

G20 finance ministers meeting in Italy have agreed to a reform of tax on multinational companies that is meant to stop nations from using ultra-low tax rates to attract businesses. The world's top economies would be the biggest gainers of the preliminary deal brokered by the Organisation for Economic Co-operation and Development while tax havens would be the biggest losers. The US, Germany, France and many of the world's biggest economies are the countries are where multinationals do most of their business but are less and less likely to have their tax bases. These countries stand to benefit from a measure that would redistribute part of the corporate taxes raised to nations where multinationals actually make their profits. The imposition of a minimum rate of 15 per cent rate (with fewer possibilities to lower it) would also increase the amount of tax to be distributed. According to the OECD, which led negotiations that produced a draft tax reform agreement among 131 nations, setting a minimum effective tax rate of 15 per cent would generate an extra $150 billion in revenue a year. Many nations have rates higher than 15 per cent on paper, but with so many exemptions that companies end paying much less. Most of these exemptions would be closed, so companies would end up having to pay at least 15 per cent. The CAE, a body charged with providing economic analysis for the French government, has calculated that Paris would probably receive an extra €6 billion ($7.1bn) in tax revenue a year. Germany would probably receive €8.3bn and the US about $18bn. China would also benefit as it is expected to be able to continue to provide certain tax incentives to support business development. However, for every winner, there are also losers, including countries that have set low tax rates to lure businesses to set up in their countries. Tax havens that charge little or no tax stand to lose the most. While Barbados and Saint Vincent and the Grenadines have baulked at the deal, other tax havens such as Panama, Bermuda and the British Virgin Islands have nonetheless signed up. "They have realised that they do not have the capacity to block an international deal and calculated that it is in their interest to be co-operative," said Nicolas Veron, an economist at the Peterson Institute for International Economics in Washington and the Bruegel Institute in Brussels. "Countries which attracted shell companies for years will suffer from the reform and will have to find other development strategies," said Farid Toubal, a professor of economics at the University of Paris-Dauphine. European countries such as Ireland, which lured Apple and Google to set up European bases with the possibility of lowering effective tax rates to practically nothing, would have a windfall of revenue if they join the reform. But that is only if these companies stay and continue to book their profits there. Countries such as the Netherlands, Luxembourg and Switzerland are in a similar boat. "Beyond the impact on public finances, it is clear that the reform process could affect these countries' economies and employment, particularly if multinationals relocate profits and investments as a result," said economist Ricardo Amaro at Oxford Economics. In 2018, about a third of the profits of US multinationals were booked in the Netherlands, Ireland and Luxembourg, although these countries only accounted for 5 per cent of their sales, said Mr Amaro. But Ireland, which has invested heavily in recent years in information technology infrastructure and education, and become a centre for the pharmaceutical industry, would probably keep many multinationals even if it raised rates. "Certainly, the shell companies will leave but the production base will stay as Ireland has other advantages. They speak English, it is part of the immense European market, etc," said Mr Toubal. Non-governmental groups, such as Oxfam, that analyse tax optimisation strategies used by multinationals have criticised the OECD-brokered deal for letting rich countries keep most of the additional tax revenue. "The world's poorest countries will recover less than 3 per cent – despite being home to over a third of the world's population," Oxfam International's executive director Gabriela Bucher said. But the draft deal that emerged at the beginning of July does contain some sweeteners for emerging nations. They will benefit from the measures that redistribute some tax revenue to countries where profits are generated. Developing countries will also be able to maintain some tax incentives to lure in manufacturing, although the details have yet to be agreed.

Who are the winners and losers from the global corporation tax agreement?

World's biggest economies will be the main gainers but offshore tax havens, low-tax European nations and poorer nations could suffer