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Against the background of a recent survey showing that 12 multinational corporations, MNCs, operating in Jamaica would be subject to the proposed global minimum tax rate of 15 per cent, the government is being urged to revisit tax incentives extended to these businesses, in order to minimise any potential fallout through tax loss to the state coffers or the country becoming unattractive to new investments.
The suggestion comes from tax consultant and president of the Institute of Chartered Accountants of Jamaica, ICAJ, Allison Peart, who also wants the review to include locally incorporated multinationals, particularly those looking to expand or have broadened their operations to jurisdictions where the tax rate is lower than 15 per cent.
Peart has warned that the global tax floor could result in higher tax rates for multinationals earning over US$100 billion in sales annually. The added taxes would affect MNCs doing business in Jamaica if the government, under the proposed global minimum tax regime, presses to collect the difference between the country’s tax rate and the global minimum tax.
Jamaica’s business income tax rate is 25 per cent for most companies, while regulated entities pay a rate of 33.33 per cent. As a means of attracting investment in Jamaica, a special corporate income tax rate of 12.5 per cent, and possibly an effective rate of 7.5 per cent with the approval of additional credits, applies to companies registered as operators under the Special Economic Zone, SEZ, law.
“As a country, we need to relook at the corporate tax incentive Jamaica gives to companies, because if you have a multinational enterprise and they are subject to income tax less than 15 per cent, they could pay the difference in their home country. That’s not necessarily coming to Jamaica, it is the headquartered country that stands to benefit the most,” Peart said during a taxation webinar hosted by the ICAJ recently.
She noted that there are talks of more incentives to come.
“So, we really need to look and ensure that the incentives are doing for us what it is supposed to do, and not creating issues somewhere else for multinationals who we are trying to attract,” Peart cautioned.
For the government, she pointed out, the biggest impact might be how the proposed regime applies to operators under the SEZ initiative, where lower taxes are designed to attract new investments and jobs. The findings of the CIAJ-conducted survey, which were shared at a recent forum, did not indicate how many, if any, of the 12 MNCs are designated under the SEZ regime.
She added that it is good timing for developing countries like Jamaica to lobby for the tax regime to deliver a more equitable outcome. The final agreement on the international tax reform is expected in October with implementation planned for 2023.
In the time until then, the tax expert wants the government to consider the potential effects of the regime on tax collections. Jamaican registered multinationals, she contended, would also need to weigh the pros and cons in terms of the potential tax payout.
Jamaica is among 130 nations that have joined a new two-pillar plan to reform international tax rules which seek to have multinational enterprises pay a fair share of tax wherever they operate. The Organisation for Economic Co-operation and Development, OECD, a grouping of rich countries, is leading the initiative.
Aside from the goal of achieving a fairer distribution of profits and taxing rights among countries in relation to MNCs, the reform seeks to put a floor on competition among jurisdictions over corporate income tax.
St Lucia has been one of the favoured offshore jurisdictions for Jamaican companies, formerly because of its tax rate which was much lower than the 25 per cent tax rate in Jamaica. Effective July 1, 2021, however, all international business companies registered in St Lucia have had to pay taxes equivalent to the 25 per cent in Jamaica, but still lower than the 33.33 per cent corporate tax rate that applies to regulated Jamaican companies.
But St Lucia is not the only country traditionally attracting company incorporations for lower tax rates. A latest report from the European Union Tax Observatory also named four other Caribbean islands – The Bahamas, Bermuda, Cayman Islands and British Virgin Islands – among 17 countries designated as tax havens that encourage tax avoidance.
The effective tax rates in the 17 jurisdictions are said to be between 10 per cent and 13 per cent. The OCED estimates that tax avoidance costs governments between US$100 to $200 billion annually.
karena.bennett@gleanerjm.com
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