The G7 want to set a global minimum 15 per cent corporation tax rate. GCC states can benefit from the recent tax decision, especially as they had introduced new taxes in the past five years as part of a comprehensive public finance reform. Image Credit: Ador Bustamante/Gulf News

The finance ministers from the wealthy G7 nations recently pledged to a minimum level of corporate tax of at least 15% and to better distribute tax revenues from multinational corporations. Britain's minister, for example, called it a "historic agreement", while Germany welcomed the "good news of justice and tax solidarity”.

This decision, if passed, will certainly impact the economies of countries with low taxes, or the so-called 'tax havens'. It will be put forward to the finance ministers of the G20 countries for final approval in July, and in the event of being approved, will have significant impact on tax policies of certain countries and the global economy as a whole.

Yet, there are positives and negatives that must be identified by each country separately, as the proposals will be binding on everyone to avoid sanctions. But it also gives those countries a chance to get ready for the future, benefit from the new tax and avoid the negatives that may result from its implementation.

Speaking of the positives, the tax targets giant tech companies, with most of them being of US origin. They have avoided paying higher taxes despite the fantastic profits they derive from operating in multiple countries.

It is too obvious to ignore that some of these companies have moved to tax havens or to countries with low-tax rates, which led to a change in Washington's position after it had initially opposed this approach despite European insistence. There is also another positive aspect - the tax will help improve the financial conditions of some countries, as it will generate additional income for the budget.

Irish will pay a price

As for the negatives, they will affect mainly low-tax countries, whose economies have rebounded after emerging as global hubs for banking and financial services companies thanks to the low tax rates, including in some European countries.

In this respect, the Irish Finance Minister Paschal Donohoe said: "Ireland hopes an agreement can be reached that does recognize the role of legitimate tax competition for smaller and medium-sized economies." It is known that Ireland's economy has thrived thanks to low taxes, which means that this decision will be a real challenge for it. The other side of this development lies in the fact that the disparity in tax rates will be reduced, but will not disappear completely, as the original American proposal called for imposing taxes at a rate of 21 per cent.

Gulf states are prepared

As for the GCC countries, they have benefited from low or zero taxes, including on corporate taxes and which turned them into a hub for foreign companies. However, the expected decline in oil’s contribution to the global energy balance will affect prices and oil revenues. But the GCC states can benefit from the recent tax decision, especially as they had introduced new taxes in the past five years as part of a comprehensive public finance reform process to support income diversification.

One other fact must be referred to here. Many thinkers and politicians, including Albert Einstein, Mahatma Gandhi and Winston Churchill, have previously called for the establishment of a federal world government that manages world affairs and imposes comprehensive laws and regulations.

Is this global tax the beginning of this stage? Perhaps, but it is very difficult for the G7 alone to enforce this plan worldwide. So the tax proposal was raised to the G20, which will make the decision an irresistible force. In addition to the G7, China, Russia, India, Saudi Arabia and Brazil will join with their economic strength and influential position in the global economy.

The writer is a specialist in energy and Gulf economic affairs.