Bermuda has responded after seven of the biggest economies in the world issued an accord supporting the outlines of a new global tax system, and a commitment to a minimum corporate tax rate of at least 15 per cent.

More details are needed before the extent of any impact on Bermuda can be assessed, however the communique from the finance ministers of the Group of Seven nations has added momentum to moves for global tax reform.

Curtis Dickinson, Bermuda’s finance minister, reacting to his G7 counterparts’ commitment to a minimum corporate tax, last night said: “It is critical that any agreed framework to establish a global minimum tax, must respect a country’s right to sovereignty in relation to its tax system.”

He said any outcome that impacts this right is outside the original agreed aims of the OECD Inclusive Framework Committee on Base Erosion and Profit Shifting (BEPS) initiative.

Mr Dickinson added: “It also does not give appropriate consideration to the rights and needs of those jurisdictions which lack the economies of scale and resources of larger jurisdictions.”

The G7 nations are Canada, France, Germany, Italy, Japan, the UK and the US. The finance ministers of those countries, meeting in the UK, on Saturday issued a 20-point communique that included committing “to reaching an equitable solution on the allocation of taxing rights” and a global minimum corporate tax.

Bermuda and some other jurisdictions have featured in media reports, including by The Washington Post and Reuters, in relation to the tax issues.

A Reuters report said Britain’s exotic network of “Treasure Island tax havens” could be facing the biggest threat to its existence in half a century after the pledge “to squeeze more tax out of large, profitable multinational companies”.

It quoted Alex Cobham, chief executive of the Tax Justice Network, as saying it was a “narrative shift” and an “active commitment to end the race to the bottom”.

Mr Cobham also accepted that the specific details could still be poorly drafted.

Will McCallum, at KPMG in Bermuda, speaking to The Royal Gazette, said: “We are seeing more indications that the major world economies really want this to happen and are working hard to reach some consensus.”

The communique set the stage for continuing momentum at the meeting of G7 leaders, which starts on Friday in Cornwall, England.

Beyond that there is the OECD Inclusive Framework talks and G20 meeting next month that will continue work on the BEPS.

The most dramatic implication of the communique is the continuation and forward momentum on the issue, Mr McCallum, who is managing director, head of tax, said.

He believed it is still too early to say what the implications for Bermuda will be until more details are known.

It is not strictly speaking the rest of the world requiring Bermuda or other jurisdictions to impose a corporate tax regime of 15 per cent. However, it could provide a way for other countries to collect a “top-up tax” on multinationals that have a footprint in their country.

An example was illustrated in April for the Atlantic Council by Jeff Goldstein, where a company is headquartered in Country A, but reports income in Country B where the corporate tax rate is 11 per cent.

If a global minimum tax rate of 15 per cent was in effect, then Country A would “top-up” the taxes paid on profits earned by the company in Country B by collecting another 4 per cent.

Mr Goldstein said: “This approach would set a floor on the collection of global tax revenue and help alter corporate incentives because companies would know that profits shifted to tax havens would face incremental taxation. It would also provide transparency on corporate tax practices since enforcing a global minimum tax would require country-by-country reporting of corporate activities.”

In his statement, Mr Dickinson said: “We have been actively involved in international discussions on regulatory and tax matters and have continued to liaise with our key trading partners, including the UK, the USA and the EU, on financial and other relevant matters. We are fully engaged with the current multilateral work of the OECD Inclusive Framework Committee on Base Erosion and Profit Shifting to address international concerns around base erosion and profit shifting.”

He added: “As these matters are progressed, conclusions reached must incorporate principles of fairness and right to sovereignty in this important area. There should also be appropriate recognition of the considerable work done, by countries such as Bermuda, to be effective partners in promoting and implementing robust standards for strong and robust regulation, transparency and international co-operation.”

In a Reuters report, Richard Murphy, a visiting professor of accounting at Sheffield University Management School, in England, believed large corporate locations, such as Luxembourg, Ireland and the Netherlands will take the biggest hit from the tax moves, compared to places traditionally serving the “personal market”.

He saw less impact on “traditional British tax havens”, however he viewed the G7 agreement as a signal for the corporate world to clean up its act. He said: “For the business community, this is sending out a very large message of ‘steer clear of these places – you could be in trouble’ and indeed some of them will be in trouble.”

The focus will now shift to next month’s meeting of the Group of 20 finance ministers in Italy and OECD-led talks, according to The Washington Post. It said another question is whether the US Congress will legislate changes to the country’s tax code, although it added that the proposed new global corporate tax system “technically could proceed without the US”.

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