Global Minimum Tax Update: Money Talks; OECD Plan in Trouble

Happy Hump Day!

Exactly one month ago, I wrote about the evil of a global minimum corporate tax rate.  It’s time for an update, as the proposal now faces some serious opposition.

I’m thrilled about that, as countries who find it hard to compete would suffer if this tax became the law of the land.

So what’s happening?

  • A 15% minimum corporate tax is supposed to be implemented globally.
  • 130 of 139 countries have acquiesced.
  • Estonia, Hungary, and Ireland are opposed.
  • The EU must have unanimity to pass the tax into law.

Money Talks

Money talks

But it don’t sing and dance

And it don’t walk

And long as I can have you

Here with me, I’d much rather be

Forever in blue jeans

 

Neil Diamond

 

It’s such a sweet song.  And for couples, it may just work.  You forego (most) earthly treasures, and it’s just you two on the couch, cuddling in your blue jeans.

But for overbearing nanny state bureaucracies, it doesn’t make any sense.  History is replete with examples of cuddles turning into bear hugs.

Or worse, cuddles getting abandoned because one partner has had their head turned.

So it is with the EU.

And thank God for that!

While I was – and still am – hoping that the US Congress would repel the attempt to set a global minimum tax, I knew the EU would have an impossible task in front of it.

How do you convince countries like Estonia, Hungary, and Ireland to abandon their low corporate tax rates for “the greater good?”

Estonia

You may not know this, but Estonia is one of the most technologically advanced countries on the planet.  From tax returns to bank accounts to company founding, literally everything is online there.

After Estonia experienced the Soviet Union’s bear hug, it decided that it needed to venture into cyberspace to ensure its survival.

It has far exceeded its own expectations by thriving online.  In fact, it’s a magnet for tech entrepreneurs who are happy to brave the cold weather to experience low taxes, practically zero bureaucracy, and a cozy old world culture.

MindValley, founded by Vishen Lakhiani, moved its headquarters from Malaysia to Estonia last year.  Skype was created in Estonia, by Estonians.  Wise, formerly TransferWise, is another.

There are over 400 active startups in Estonia.

Why on earth would their government want to mess with such a successful system?

Hungary

Another amazing country that’s finally starting to get the attention it deserves is Hungary.

Its capital, Budapest, is one of the world’s most beautiful cities.  I’ve been there quite a few times and it never disappoints.

Both its corporate and personal tax rates are low, leading to many entrepreneurs and digital nomads going to Hungary for at least part of the year.  The corporate tax rate for startups is only 9%.

Of course, the smears against Viktor Orban, the Hungarian Prime Minister come thick and fast, especially from the leftist media.  But calling Hungary an authoritarian state is ludicrous.

Hungary is not as free of bureaucracy as Estonia, but few countries are.

Ever do a slide presentation on Prezi?  That’s a Hungarian start-up.

Ireland

Though it seemingly rains every single day in Ireland, it’s one of the world’s most delightful countries.

It shares a Common Travel Area with the United Kingdom.  This means the British are not treated as aliens in Ireland and the Irish aren’t treated as aliens in the UK.  Simply, they can travel visa-free to each other’s countries despite EU whining.

To compete with the economic behemoth to its east, Ireland reduced its corporate tax rate to 12.5%.  As a result, many banking back office functions and other clerical jobs moved to Ireland permanently.

More importantly, this has also led to a thriving startup culture.

French Minister for European Affairs, Clément Beaune, wrote an open letter to the Irish government practically begging it not to block the EU implementing this tax.

Monsieur Beaune wrote:

International investors have established headquarters in Ireland because it is attractive, developed and stable. Ireland is English-speaking, has a qualified labour force and young people from all over Europe have moved to Dublin… a low corporate tax rate is no longer Ireland’s main economic tool or weapon.

With respect, Monsieur Beaune is full of merde.

The low corporate tax rate is precisely what companies look for when they’re setting up shop.  

It is France that has a difficult time competing because of its high personal and corporate tax rates, intolerable bureaucracy, and stubborn refusal to adopt English even as a business language.

Don’t get me wrong, France is lovely.  The food, wine, and sightseeing are to die for.

But for business?

There are literally 50 other countries that make it cheaper and easier for you to set up shop.

Have a look at all the foreign companies who’ve set up shop in Ireland here.  Stripe, the payment processing app based both in Dublin and San Francisco, is perhaps Ireland’s most famous startup.

The Rest of the Crew

Barbados, Kenya, Nigeria, Sri Lanka, St. Vincent, Peru, and the Grenadines have also refused to endorse the tax.

Who can blame them?

If you don’t have full control over your fiscal policy, it’s tough to claim you have full sovereignty.

If you’re a little country with scarce resources, a lack of development, and no other means to attract business, a low tax rate is one of the most effective tools in your arsenal.

Quick review: the OECD or Organization for Economic Cooperation and Development, is a Paris-based organization that tries to set worldwide economic policy.  Its findings are non-binding, but exert a powerful influence on national governments.

Here’s one of my most trusted rules of thumb:

Never trust any organization that’s based in Paris.

The US, UK, France, Germany, and other fiscally irresponsible governments are using the OECD as the vehicle to push through this agreement.  To do so bilaterally would take too much time.

Robert Zumwalt put it nicely on the Mises Wire:

In short, wealthy nations know they can only tax businesses so much before those businesses find it profitable to move to competing jurisdictions with lower tax rates, and the G-7 leaders are now openly seeking to collude with other nations to put a stop to that competition. There is little meaningful distinction between this and the alleged anticompetitive practices of private businesses—complete with “kickbacks” promised to cooperating participants—that the same governments continually vilify.

And there it is.

Collusion for me, but not for thee.

So there’s my bit of Hump Day good news.  There seems to be some pushback on the authoritarian tyranny of the day.  Nice.

Have a wonderful Wednesday!

All the best,

Sean

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