USD Influenced by Global Minimum Corporate Tax Rate| Influencer‘s Insight •Jasper Lo

At present, the Biden administration expects to increase the corporate tax rate from 21% to 28%. This tax hike has always been cast as a match for the improvement of fiscal deficit and the implementation of the prospective massive infrastructure plan in the US before and after Bidens campaign. Speaking of the forex market, this is absolutely a positive fundamental factor for USD whereas Yellen, the US Treasury Secretary, noted on Monday (April 5th) that she was working with G20 member states, hoping to reach a consensus on the global minimum corporate tax rate conducive to ending the 30-year cutthroat race for taxes on corporations and the corporate tax base erosion.

As a wannabe Reagan, Trump rolled out a large-scale tax reform by slashing the tax rate for corporations from 35% to 21% when he took office, hoping to attract American corporations from tax havens back to the US as a place for their production bases and headquarters, among which Ireland can be taken as an example. Boasting the advantage of its low tax rate (12.5%), Ireland has successfully become an attractive country for many American tech giants that built their local presence, including Apple Inc., a household name. Thanks to the considerable capital from the US and the other foreign nations, Ireland was the first to get free from the European debt crisis. Currently, strong opposition is rife in the country because Yellen suggests that the global minimum corporate tax rate be set up at 21% which is predicted to ram Ireland the most.

Based on OECD data for 2020, the top five member states with the worlds highest corporate tax rates were France (32%), Australia (30%), Mexico (30%), Portugal (30%) and New Zealand (28%) while their counterparts embracing the lowest were Switzerland (8.5%), Hungary (9%), Ireland (12.5%), Canada (15%) and Lithuania (15%). Other industrial nations like Germany, Britain, America and Japan were 15.8%, 19%, 21% and 23.2% respectively. The average for the OECD countries was 21.5%.

At the same time, Yellen said that, according to the new corporate tax code proposed by the Biden administration, corporate profits overseas worth USD 2 trillion are expected to be brought back into the US over a decade and around USD 700 billion can stream in federal revenue. All these strategies will be beneficial to American corporations and capital flow, vigorously boosting its economy. In addition, ambitious tax hikes can cut the US fiscal deficit down further and support the implementation of its massive infrastructure plan but weaken countries with the lowest tax rates, including Switzerland, Hungary, Ireland, Canada even Germany. Investors need to pay close attention to the development of the global minimum corporate tax rate which will be definitely good for USD but relatively bad for CHF, EUR and CAD once it comes true.