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G7 Tax Rate Initiative May Have Implications For Supply Chains and Shipping

G7 Tax Rate Initiative May Have Implications For Supply Chains and Shipping

BY Peter Raven

The Group of 7 nations or ‘G7’ initiative to create a structure of minimum tax corporate tax levels may have spillover implications for supply chains and shipping.

Motivated largely by the concern about the tax policies of predominantly US technology and pharmaceutical companies, the finance ministers of the G7 are attempting to agree to a minimum corporate tax rate by committing to –  “reaching an equitable solution on the allocation of taxing rights, with market countries awarded taxing rights on at least 20% of profit exceeding a 10% margin for the largest and most profitable multinational enterprises. We will provide for appropriate coordination between the application of the new international tax rules and the removal of all Digital Services Taxes, and other relevant similar measures, on all companies. We also commit to a global minimum tax of at least 15% on a country-by-country basis.”

Whether this will work or how it will be implemented is still unclear, however, it does have possible implications for the logistics sector in general and the shipping industry in particular. Many shipping lines leverage the practice of registering their vessels under “flags of convenience”. The imperative for doing this was driven by regulatory as well for tax reduction purposes.

If this tax rate initiative becomes policy and is extended to apply to shipping, the plans would cut through close to a hundred years of tax policy. Profits would no longer be subject to tax only in the place of effective management of a shipping company such as in Panama, Liberia or the Bahamas. These countries and others like them could no longer use their tax systems to support their ambitions to be maritime nations”, develop their own maritime clusters, bolster their ship registries, build up maritime expertise across a range of services and train a steady stream of new recruits for their maritime industry.”

It may be that shipping negotiates opt-outs to the policy, as it has done in the past over competition law or fuel regulations however it could represent an opportunity for major economies with a taste for regulation and economic control to assert themselves more strongly over the maritime sector with spillover effects that increases the costs of operation for many shipping lines. Additionally, it could trigger restructuring as subsidies are phased out. Either way, a change in the approach towards global tax structures are likely to pose a threat to the status quo in shipping and it will be worthwhile to see what eventuates out of the talks between the G7  and the possible ramifications and counter actions shipping lines will be taking. Supply chains globally are already facing tremendous setbacks and challenges this past year and such an action is perhaps one of the last things it needs.

 

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