G7 tax reform and the rise of global city corporations
Ville Korpela, a professional futurist and consultant at Dubai Future Foundation, explores what the G7 decision to introduce a corporate tax for all multinational corporations operating in their countries will mean for the Gulf
Ville Korpela is a professional futurist and a consultant at Dubai Future Foundation. The opinions voiced in this column are his own and do not reflect the official position of Dubai Future Foundation.
With what many call the historic G7 decision to introduce a corporate tax for all multinational corporations operating in their countries, corporate and governmental decision makers in the Gulf are wondering what the wider implications of this decision for businesses located in the GCC region might be.
As a professional futurist, my job is to go both long and short at the same time. What it means in practice is matching long-term visions and strategies with actionable items that can be put in use today.
Some would indicate that the G7 tax reform heralds the return of the state. In my view, what we are actually witnessing, is the rise of city corporations as the primary actors in international relations and the cities assuming a larger role as the fiscal contributors to finance the state expenditures. The G7 decision is likely to speed up the process of merging the interests of cities and major corporations.
Paying the taxes is not the core problem. The problem is the short-term view and the lenses through which public markets value listed assets. If we are to create sustainable long-term inclusive growth, we need to move beyond quarterly financial return expectations towards a system where asset prices reflect the long-term impacts, both financial and non-financial. We are already seeing some significant de-listings of publicly listed corporations in the region, such as the cases of Investcorp and SICO in Bahrain. This trend is likely to continue, as asset owners are not seeing long-term value creation being priced properly in the ways our securities exchanges operate currently. We are moving from an era of risk towards an era of uncertainty, which requires both new mindsets and new valuation and asset allocation strategies, which embrace transformation and resilience as the core components of value creation.
We need massive investments in education and infrastructure. The traditional view would hold that these investments would be financed through taxes. A new paradigm of blended finance is emerging, one in which corporations and private capital invest alongside with government to finance the public expenditures. In this new brave world, cities have shown themselves to be more agile to adopt a new mindset as central governments. There is no evidence that would suggest that governments would disappear, their role as the guardians of external borders and as enforcers of legislation will remain. However, it will be the cities that will resume their historical role as the primary engines for catalysing economic growth.
Over the short term, what we are likely to see are two things. First, some corporations willingly obeying with the new G7 decision and with others opting to shift their focus to operating outside of the developed markets to favour emerging markets. This will most likely increase the direct investments to the Gulf region as a whole, as especially Dubai and the UAE possess the necessary infrastructure to manage such emerging market corporate portfolios. Second, some corporations will seek new alliances with large cities to reap tax benefits through introduction of free trade and innovation zones within such cities. These city-corporation alliances will develop emergent forms of collaboration which we are not yet able to foresee.
Over the mid-term, city driven investment platforms are likely to take over some of the transactions from the listed securities exchanges, due to higher transparency provided by emerging technologies such as the blockchain and artificial intelligence, to build connected marketplaces for creating economic and social value. Platform economies have already made ownership somewhat redundant as the key component of creating and capturing value, so will the transaction fees generated by such platforms replace taxes as the key source of public revenue over time.
In the long-term the key question remaining is the question of responsibility and the role of the state and that of the corporations. Megatrends, such as climate change and technification, call for each actor to assume responsibility on an entirely different level as before. Hence, the distinction between the public and private sectors will blend, both have to work together in innovative ways, if we are to reach a sustainable future, where the rights of future generations are equally incorporated as part of investment decisions we make. Benjamin Franklin famously said that nothing is certain except death and taxes. In the new era of uncertainty, nothing is certain except that we are all responsible for working together for our joint future.
Ville Korpela is a professional futurist and a consultant at Dubai Future Foundation. The opinions voiced in this column are his own and do not reflect the official position of Dubai Future Foundation.
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G7 tax reform and the rise of global city corporations
Ville Korpela, a professional futurist and consultant at Dubai Future Foundation, explores what the G7 decision to introduce a corporate tax for all multinational corporations operating in their countries will mean for the Gulf
Ville Korpela is a professional futurist and a consultant at Dubai Future Foundation. The opinions voiced in this column are his own and do not reflect the official position of Dubai Future Foundation.
With what many call the historic G7 decision to introduce a corporate tax for all multinational corporations operating in their countries, corporate and governmental decision makers in the Gulf are wondering what the wider implications of this decision for businesses located in the GCC region might be.
As a professional futurist, my job is to go both long and short at the same time. What it means in practice is matching long-term visions and strategies with actionable items that can be put in use today.
Some would indicate that the G7 tax reform heralds the return of the state. In my view, what we are actually witnessing, is the rise of city corporations as the primary actors in international relations and the cities assuming a larger role as the fiscal contributors to finance the state expenditures. The G7 decision is likely to speed up the process of merging the interests of cities and major corporations.
Paying the taxes is not the core problem. The problem is the short-term view and the lenses through which public markets value listed assets. If we are to create sustainable long-term inclusive growth, we need to move beyond quarterly financial return expectations towards a system where asset prices reflect the long-term impacts, both financial and non-financial. We are already seeing some significant de-listings of publicly listed corporations in the region, such as the cases of Investcorp and SICO in Bahrain. This trend is likely to continue, as asset owners are not seeing long-term value creation being priced properly in the ways our securities exchanges operate currently. We are moving from an era of risk towards an era of uncertainty, which requires both new mindsets and new valuation and asset allocation strategies, which embrace transformation and resilience as the core components of value creation.
We need massive investments in education and infrastructure. The traditional view would hold that these investments would be financed through taxes. A new paradigm of blended finance is emerging, one in which corporations and private capital invest alongside with government to finance the public expenditures. In this new brave world, cities have shown themselves to be more agile to adopt a new mindset as central governments. There is no evidence that would suggest that governments would disappear, their role as the guardians of external borders and as enforcers of legislation will remain. However, it will be the cities that will resume their historical role as the primary engines for catalysing economic growth.
Over the short term, what we are likely to see are two things. First, some corporations willingly obeying with the new G7 decision and with others opting to shift their focus to operating outside of the developed markets to favour emerging markets. This will most likely increase the direct investments to the Gulf region as a whole, as especially Dubai and the UAE possess the necessary infrastructure to manage such emerging market corporate portfolios. Second, some corporations will seek new alliances with large cities to reap tax benefits through introduction of free trade and innovation zones within such cities. These city-corporation alliances will develop emergent forms of collaboration which we are not yet able to foresee.
Over the mid-term, city driven investment platforms are likely to take over some of the transactions from the listed securities exchanges, due to higher transparency provided by emerging technologies such as the blockchain and artificial intelligence, to build connected marketplaces for creating economic and social value. Platform economies have already made ownership somewhat redundant as the key component of creating and capturing value, so will the transaction fees generated by such platforms replace taxes as the key source of public revenue over time.
In the long-term the key question remaining is the question of responsibility and the role of the state and that of the corporations. Megatrends, such as climate change and technification, call for each actor to assume responsibility on an entirely different level as before. Hence, the distinction between the public and private sectors will blend, both have to work together in innovative ways, if we are to reach a sustainable future, where the rights of future generations are equally incorporated as part of investment decisions we make. Benjamin Franklin famously said that nothing is certain except death and taxes. In the new era of uncertainty, nothing is certain except that we are all responsible for working together for our joint future.
Ville Korpela is a professional futurist and a consultant at Dubai Future Foundation. The opinions voiced in this column are his own and do not reflect the official position of Dubai Future Foundation.
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