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New global trend: minimum tax rate

The topic of a minimum corporate income tax rate is rapidly evolving and gaining acceptance. Announced only at the beginning of the week by Finance Minister Janet Yellen, the idea found a quick response from German politicians, as well as from officials of the IMF and World Bank. This proposal is in line with the global trend towards deoffshorization and pressure on tax havens, which has been gaining momentum in recent years. European officials even expressed confidence that such a rate could be introduced at an unimaginable speed for bureaucrats by the middle of the year. We will try to assess this initiative from the perspective of its impact on financial markets. Obviously, America is proposing this idea because it intends to actively and impressively raise taxes to pay for already introduced aid packages and further economic growth initiatives, but all this would create a wave of companies leaving for other jurisdictions with lower taxes. That is, capital flows would risk passing by the United States, and this is bad news for financial markets. It is easy to see that Trump’s tax reform has stimulated the accelerated growth of American stock exchanges in comparison with Europe and Japan. Moreover, over the past 50 years, the United States has systematically reduced corporate taxes (or raised them less than others). This clearly explains the advantage of the US markets, as well as why so many global corporations have grown in the US. Capital inflows to US stock markets in the two years starting in 2018 also supported the dollar’s strength during this period. Tax hikes promised to shift the balance outside the US internationally agreed tax hikes promise to be a global disincentive for stock markets as a higher proportion of capital will now be distributed not by millions of businesses, but by governments. As a result, companies will have less money to buy back shares, dividends and investments. However, as long as these tax increases do not threaten the bull trend as a whole, promising only to slow it down. For the foreign exchange market, the introduction of a global minimum tax rate may contain the easing dollar, part of which was associated in forecasts with the deterioration of the tax regime .________________ Alexander Kuptsikevich, Lead Analyst at FxPro

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