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The recent agreement to set a global minimum corporate tax rate of 15% will reduce the appeal of shifting operations to certain low-tax jurisdictions for multinational corporations, says Moody’s Investors Service.

This, in turn, may hurt countries that have used low tax rates to lure business.

“If successfully implemented, the global minimum corporate tax rate will be mildly credit negative for sovereigns that have used tax policy as a key component of a broader competitiveness strategy to attract investment, such as Ireland, Hungary, and many Caribbean economies, which typically have corporate tax rates below 15%,” Moody’s said.

The negative credit implications will generally be larger for emerging markets countries, the report said.

Advanced economies with favourable corporate tax policies — such as Ireland, Singapore, Hong Kong, China, Luxembourg and the Netherlands — will still have “the human capital, strong institutions and high quality infrastructure that will allow them to remain competitive and attract investment as they continue to make investments in these areas,” the report said.

Conversely, some emerging markets “may struggle to remain competitive if they lack elements such as adequate infrastructure, skilled labour or a responsive regulatory environment,” Moody’s said.

In particular, offshore tax havens in the Caribbean, such as the Cayman Islands, Bermuda, Barbados and the Bahamas could be negatively affected, as could other offshore financial centres such as Bahrain and the British Virgin Islands, the report suggested.

Companies currently taking advantage of these offshore financial centres “may be more mobile and susceptible to changes in the corporate tax rate because of their limited physical presence in those jurisdictions,” Moody’s said, and countries could face revenue and employment losses as a result.

“That said, these low-tax jurisdictions with [offshore financial centre] activity have non-tax benefits that help to attract offshore activity, including sound infrastructure, skilled labour and a responsive regulatory environment, which will likely help offset potential losses of offshore firms when a global corporate minimum tax is implemented,” it said.

Countries in the Middle East that have used free trade zones and low taxes to try and diversify their economies away from oil and gas, such as the United Arab Emirates, may see those efforts hindered by a new global minimum tax, Moody’s said.

The report also noted the deal could be positive for higher-tax countries.

“The impact on governments’ revenues will ultimately depend on how the agreement is implemented and enforced and on how affected companies adjust their tax strategies in response to the changes. It will also depend on each country’s ability to broaden the corporate tax base, reduce loopholes and distortions, and efforts to combat tax avoidance and evasion,” the report said.

Moreover, implementation isn’t slated to start until 2023, Moody’s said. Additionally, reforms to the global corporate tax regime have been expected for several years.

Companies most likely to be affected by the new regime include companies with sophisticated tax structures in the pharma and tech sectors, Moody’s said.

“To the extent that a minimum tax rate increases effective tax rates, affected companies could expect marginally lower operating cash flow, but the credit effect of any such reduction would pale in comparison to the impact of their financial policy decisions,” the report said. “Generally, we expect that these companies would be able to offset any marginal credit impact of taxes through small adjustments to the amount that is returned to shareholders.”