Corporate service providers (CSP) in the island could face a ’sledgehammer’ blow if the United States pushes ahead for a global minimum rate of corporation tax, expert Greg Jones has warned.

The Isle of Man could come under more pressure as it emerged the move to corporate tax reform has been underlined by comments from France and Germany in support of a new global minimum rate being set at a high level.

The finance ministers from the two countries, when asked in an interview with German newspaper Die Zeit what their reaction was to the US proposals of a minimum 21 per cent tax on its companies, indicated broad support.

Last month Business News reported tax commentators have warned President Joe Biden’s global tax plans could have an impact on the Isle of Man’s corporate tax system and its ’sacred’ zero rate.

Now Greg Jones, a tax consultant with an island law firm, says the issue does not appear to be going away and it is a ’worrying development’.

He said: ’After years of certain EU member states, for example, France, agitating about lower tax countries stealing their lunch, the recent decision of the US to actively push for a global minimum rate has suddenly made it a very real threat for the "offshore" centres.

’It is hardly surprising that neither France nor Germany would object, given that the effective rate of corporate tax in both those countries is approaching 30%. It’s also clear that the actual minimum rate is still open to negotiation, with Ireland (12.5%) and Malta (5% effective rate in certain situations) both keen to make a case in support of smaller countries.

’But ultimately it’ll be down to whether the new US president can carry Congress with him or will his early-days zeal founder on the rocks of political reality like gun control.

’Left to their own devices I’m not convinced the UK’s sabre-rattling noisy neighbours would necessarily achieve anything.

’But if the US did push this through - even at a rate lower than 21% - it would be a sledgehammer blow to the CSP industry, and not just in the Isle of Man.

’There would be little incentive to forming a company in any of the current "zero tax" jurisdictions (including Jersey and the British Virgin Islands (BVI) if the tax rate were on a par with the mainstream countries, and much business would be lost.

’Depending on how much company tax a minimum rate generated, it might enable the island to reduce its personal tax rates, thereby making us even more attractive to high net worth individuals.

’I suspect the rate of attrition would make this unrealistic, though - if anything, we might need even higher personal taxes across the board to compensate for the loss of CSP jobs.

’So all in all it’s a worrying development but whether the worst comes to the worst will depend on the US not losing interest.’

Another island tax expert Paul Hotchkiss said: ’This initiative is certainly gathering momentum but like all such things there will be many bumps in the road before a consensus is reached between countries.

’This is already apparent: France and Germany seem to back the US’s proposal at 21% but Ireland is not convinced and wishes to cap the rate at 12.5%.

’What seems clear is that the battleground is not over the idea but what rate should be applied.

’Whether this affects the Isle of Man remains to be seen.

’As indicated last week it relates to multinationals which may not have an immediate impact but the risk could be that general initiative, swelled by public sentiment, may broaden.

The US has proposed a 21 per cent global minimum to apply on the international earnings of its companies.

The Biden administration is also a key player in OECD (Organisation for Economic Co-operation and Development) talks which are trying to agree an effective global minimum tax rate for corporations to be recommended across 139 countries.

Asked their reaction to the US 21 per cent rate in the context of the OECD talks, German minister Olaf Scholz said: ’I, personally, have nothing against the US proposal.’

His French counterpart, Bruno Le Maire said : ’If that was the outcome of negotiations, we would also be agreed.’