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At a meeting in London earlier this month, G7 finance ministers – the United States, Japan, Britain, Germany, France, Italy and Canada – unanimously agreed to start creating the framework of a “global corporate tax rate”.
The framework established a principle of two pillars. The first pillar ensures that companies with a profit margin of 10% would be subject to the tax rate. The second pillar ensures that countries will apply a minimum tax rate of 15%. In all of this, the new rules will focus on where the profit was made and not where the business is based – the idea being that businesses are discouraged from moving money around the world. whole. whole or to provide services in a country of another which has a lower price. tax rate.
Does legal mean moral?
The concept of a comprehensive corporate tax rate is not new. With companies like Google, Amazon, Facebook and Apple making billions of dollars in revenue and paying little or no tax, regulators and governing bodies have attempted to fill in the loopholes used by these large multinationals.
The practice of earning money in one country and then transferring it to another in order to pay less taxes or avoid them all together is perfectly legal, most of the time. Although, in practice, this may raise moral questions. This practice is only really in the spotlight with the increase in the number of international and digital companies moving more money around the world than ever before. Apple, for example, holds more cash in reserves than the aggregate gross domestic product (GDP) of many countries. Yet in most countries it pays less tax than the average for domestic companies.
This closing of loopholes may signal a good decision for national governments. The UK, for example, is expected to earn an additional $ 14.7 billion for its economy over the next ten years – massive aid, given the large impact of the global COVID-19 pandemic.
But what about cryptocurrencies?
With the inevitable introduction of these new pillars, we have to ask ourselves: what impact could this have on crypto companies?
Crypto, at its core, is truly international. It also moves money around the world and targets an international audience. As a result, by its operation alone, it comes under what many consider to be the new rules of international corporate taxation. (Note: International companies literally refer to companies that have multiple locations or do business in multiple countries.)
The implementation of these new rules has yet to be confirmed, and many still don’t know what exactly it will look like. The feeling is that crypto companies that operate internationally will have to do one of two things: either be prepared to pay a 15% domestic corporate rate worldwide, or move their physical location to a truly international location. To be clear, this should be more than just a head office.
In reality, we would see the death of companies based in places like the Seychelles or the British Virgin Islands with real offices in New York (you know who they are). Likewise, the service company based in the United States with the main company based abroad may also be subject to certain changes. In the future, we may see companies that will be purely based out of their location, such as the British Virgin Islands, with the team physically doing business there.
Not so universal after all
The flip side is that even though the G7 represents a huge share of global GDP, there are still massive players such as India, China and Russia who are not included in these new rules. They didn’t even sign up for them. And it’s hard to say if they’ll even adopt them. Likewise, countries like Singapore and Ukraine have excellent tax rules for companies that are simply looking to do business there with a minimal presence.
The right to define your own tax rules is a massive sovereign right. Countries won’t want to quickly give up on this – especially countries that rely heavily on income from in-company training and companies doing business on their otherwise unknown shores. Also, don’t get confused that this whole process was led by the United States. The United States knows it is losing money by allowing companies to transfer funds outside of the United States on a corporate basis. This is something they desperately need to stop, with increasingly onerous tax laws for individuals and corporations. Countries like Russia won’t want to look like they’re being pushed around by the US
For now, the best thing any crypto company can do is monitor the development and implementation of these taxes. If, when rolling out the new rules, taxes are massively excessive, many may want to consider new physical locations and offices, especially those that make more than 10% profit and, more importantly, those that do business. . in a location with good taxes, but have their physical offices in another location. No one needs to panic now. However, their five or ten year plan may want to see some adjustments in case the worst happens.
Finally, we must never forget that tax evasion is illegal and should not be practiced. Tax evasion, on the other hand, is just smart planning and is always worth spending the time and money to implement it properly.
This article is for general information purposes and is not intended to be and should not be construed as legal advice.
The views, thoughts and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of UKTN.
Cal evans is an international technology lawyer from London who studied financial markets at Yale University and worked with some of Silicon Valley’s most well-known companies. In 2016, Cal left one of California’s Top 10 Law Firms to found Gresham International, a technology-focused legal and compliance services firm that now has offices in the US and UK. United.
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