Cyprus has dared to swim against the tide of sentiment running to all corners of the globe that multinational firms should pay a fairer share of tax.
The island nation has threatened to block EU officials from signing up to Joe Biden’s minimum 15% corporate tax plan risks a backlash of greater force than the loss of a few hundred million euros in tax receipts should an agreement be signed.
It shouldn’t be inconceivable that the Mediterranean island becomes a pariah state, blamed for ruining one of the only chances the EU has to act collectively in support of a global tax system.
Its finance minister, Constantinos Petrides, said tax rates should be “a national competency” and “suitable for the sustainable development of the economy and investments”.
There might be some sympathy for Petrides if the history of investment in the southern half of the divided island, sometimes called Moscow-on-the-Med, was less closely linked to Russia via a favourable tax treaty and a significant Russian enclave in the second city, Limassol.
Sadly, it is wishful thinking to assume that Brussels would punish such outrageous behaviour. The abuse of EU rules by Hungary’s leader and recent No 10 visitor Viktor Orbán shows that Brussels is hamstrung by a lack of collective will when internal sanctions are called for.
Hungary charges 9% and Ireland 12.5% on corporate income and Ireland has lobbied hard against the Biden plan.
It’s easy to see why when details of the tax planning allowed by Dublin come to light. Analysis shows that Ireland’s finance ministry watched last year as the US tech firm Microsoft assigned $315bn (£222bn) of profits to its Irish subsidiary, only to see it all disappear to Bermuda, where the business is “resident” for tax purposes.
The brass plate subsidiary in Dublin, which has zero employees, sent the profit to Bermuda as part of a three-decade-old tax planning scheme to benefit Microsoft shareholders, chief among them the billionaire founder Bill Gates.
A fortnight ago, Ireland’s finance minister, Paschal Donohoe, said he had “significant reservations” over the Biden plan and predicted that Ireland would maintain its 12.5% corporate tax rate for many years to come.
Britain is not immune to a wobble over the US plan. Rishi Sunak is understood to have joined a band of rebels, including Ireland, when Biden’s finance chief, Janet Yellen, suggested 21% as the minimum rate. He is expected to demand a system that replaces, at the very minimum, the £245m the UK Treasury receives from its newly minted digital services tax.
Ultimately, Britain should come on board. And so should Ireland. Dublin has benefited hugely from a redrawing of international corporate tax rules a decade ago by the Organisation for Economic Cooperation & Development (OECD), which forced companies to pay more tax where they had employees and physical assets.
That pushed Ireland’s corporation tax receipts from about €4bn (£3.5bn) in 2013 to around €12bn (£10.5bn) in 2020. Maybe the next stage of tax rules will dent this income, but it should be clear that being inside the tent is financially better than kicking away the supporting poles.
G7 finance ministers begin a three-day meeting today and it is hoped a tax deal will be thrashed out in that time. Critics of EU unanimity say the G7 members France, Germany and Italy should abandon the ideal of an EU signature on an agreement and instead sign up themselves.
This must be the way forward if the alternative is the deal foundering on the rocks of Cypriot intransigence.
A big jump in economic activity across the UK and continental Europe, where surveys showed the services sector roaring back to life, and a steep fall in unemployment claims in the US would usually be a cause of celebration by investors.
Yet stock markets were hesitant and in the case of the FTSE 100, fell 92 points, or 1.3%, to 7,014.
Clearly the recent economic rebound has already been priced into corporate shares and, looking ahead, investors are becoming cautious.
While some economists worry about inflation taking hold should workers be able to exploit labour shortages by pushing up wages – a phenomenon that is likely to be only temporary – most City analysts are listening intently to Boris Johnson’s every utterance for signs of doubt about his plan to lift Covid restrictions on 21 June.
Investors will hope that any delay is only short-lived, or they may just panic.