An agreement between the advanced countries of the Group of Seven (G7) to set a minimum global corporate tax rate of 15 percent is expected to have far-reaching implications for Gulf economies to attract multinational corporations.
Japan Finance Minister Taro Aso told reporters on Tuesday that countries realized they could no longer rely on corporate tax cuts to race down to generate growth in their economies. “Now that the course has been shown, the possibility (of a tax treaty) in the G20 will increase, “said Aso.
The G7 includes the US, Japan, Germany, the UK, France, Italy, and Canada.
The larger G20 also includes Saudi Arabia, the only Gulf country. Analysts expect the adoption of the new Rules to gradually change the regional tax base, with the measure likely to affect some Gulf economies more than others, depending on the number of multinationals operating in them.
A balancing act for Arab governments trying to attract more FDI to the GCC is more clarity required to measure potential economic impact, “said ADCB chief economist Monica Malik in a statement to customers.For the companies that will be included in the new framework (likely with a focus on digital companies), however, the impact could be significant: in the medium term, global tax developments could lead to an expansion of corporate taxes in the region, especially if it is international
. The Gulf economies attract both individuals and businesses through low or no taxes, along with higher tax revenues from large multinational corporations. However, ongoing reforms aim at more stable public revenues and less reliance on hydrocarbon revenues.
The emphasis on taxes, especially with the recent introduction of VAT in countries like the United Arab Emirates and Saudi Arabia. Corporate taxes were also one of the big topics of the Saudi G20 presidency last year. The deal between the G7 countries this week, Emirates NBD chief economist Khatija Haque told Bloomberg TV on Tuesday that the wider adoption of the new G7 fiscal rules by the G20 and the OECD would also trigger regional changes.
However, the number of companies initially affected is comparatively small. This region doesn’t necessarily make up a large portion of its global income, “he said. From a broader perspective, it will be more interesting if the region as a whole tries to levy this corporate tax on other, perhaps smaller, foreign-owned or foreign-owned companies to expand.
They have to be very careful with this, as there is enormous pressure to attract more foreign direct investment into the region and they do not want to endanger this with overly aggressive corporate taxes.