There is "scant evidence" to support the much-speculated view that the G7 pact on tax will limit small state international financial centres such as the British crown dependencies and overseas territories (CDOTs), requiring them to overhaul their tax systems, argues Geoff Cook, chair and non-executive director at international law firm Mourant Consulting.

In his latest blog, Cook, who was also former long-standing CEO of Jersey Finance and Head of Wealth Management HSBC UK, said that while the G7 announcement on tax has made world headlines, the agreement's substance falls well short of the PR.

It was not too surprising that seven countries whose corporation tax rate is already over 15% have been able to agree they would like large Multi-National Corporations (MNCs) to pay business tax on foreign earnings at least at that rate, he said.

"The powers who decide the global tax agenda are the G20, including China, Russia, and Saudi Arabia. The rules developed by the OECD's Inclusive framework include a further 139 countries. This work will now progress, informed by the G7 Communique, and scheduled to report in time for the October G20.

"It's essential to be clear that the headline rate of 15% doesn't mean that all countries must increase their rate to this level, but multi-national profits will be subject to a 15% minimum effective rate on foreign earnings. But only 20% of profits above a minimum threshold of 10% are up for reallocation to market-based taxation. Some gains may be reallocated and taxed by countries where sales conclude."

Cook further pointed out that the US and OECD proposals target the most significant global trading companies without differentiation by sector, with US domestic and EU markets being the main focus.

"The changes made through the OECD Base Erosion and Profit shifting measures, the EU's economic substance requirements, and the US GILTI tax mean that British centres with limited treaty networks are already likely to be an unattractive proposition for hosting this kind of business.

"As ready adopters of international standards, there is little doubt that the CDOTs will subscribe to any new global standard on corporation tax in their capacity as OECD Inclusive Framework members."

Cook maintained that the primary role of the international financial centres was "to package and distribute international investment capital taxed in the investor's hands. There is universal agreement between the major players, including the US and the OECD, that this activity should not be in scope. It supports wealth and job creation and will be a crucial enabler of pandemic recovery efforts."

He also quoted from the G7 Communique which he said does not provide for a new Global Tax Agreement but is instead a clear statement of political intent:

"We strongly support the efforts underway through the G20/OECD Inclusive Framework to address the tax challenges arising from globalisation and the digitalisation of the economy and to adopt a global minimum tax.

"We commit 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 multi-national 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. We agree on the importance of progressing agreement in parallel on both Pillars and look forward to reaching an agreement at the July meeting of G20 Finance Ministers and Central Bank Governors."

Subscribe to International Investment's free newsletter