The news that the G20 has been discussing the idea of a global, minimum rate of corporation tax is a potential “exocet” for Guernsey’s tax system.

In international politics, might may not always be right, but it usually prevails nevertheless.

So if the group of countries with the world’s largest economies really does reach agreement on minimum tax rates for businesses, then any smaller country which ignores that code will find themselves in a cold and lonely place.

Constitutionally the big boys may have no right to interfere with other countries’ internal tax systems but that’s fairly academic. Once they start to say, ‘if you don’t comply then we’ll make it very hard for our nationals to do business with you’, then it would be a very brave/foolish minnow which replied ‘do your worst’.

However before we get to that situation they will have to agree among themselves. That may not be so easy. While they might be in accord over squeezing very low tax regimes, where the standard rate of corporation tax is zero, some of them will be very nervous about where it could all end.

What if, in the future, countries with really high tax rates start to resent the loss of business to other countries with relatively competitive regimes? Will the USA really agree to harmonise with France?

Let’s assume they decide that’s a risk worth taking and they should start by setting a global minimum rate of corporation tax at, say, 10%.  How will that affect Guernsey?  Well clearly unless we take a huge and reckless gamble and tell them to ‘go forth and multiply’, then we will have to dismantle the zero-10 tax regime.   Does that really matter? Well it wouldn’t if we were able to revert to our old tax regime, in fact in many ways that would be a huge relief, but I’m afraid we can’t.

To put into context the impact on Guernsey of any international minimum rate of corporation tax we have to remember the two reasons why we brought in zero-10.

Firstly because it was regarded as vital to our finance industry to be able to offer a ‘zero product’. In other words, there were some businesses which we didn’t want to tax for the sake of the broader economy.

We used to achieve that by offering a limited range of companies ‘tax exempt status’.  The OECD and the EU called foul. They said ‘set whatever tax rates you like, but don’t tax anybody less than your standard rate, that is just predatory behaviour designed to steal business’.

We really had two options.  Firstly we could have made the previously tax exempt companies pay our standard rate of corporation tax – then 20%.

The perceived wisdom was that would lead to economic ruin.  Secondly we could [and did] reduce our standard rate of corporation tax to zero.

This was deemed the best long-term option, despite making a huge hole in the public finances.

Of course if nowhere in the world could offer a ‘zero product’ the situation would be slightly different.

The idea that Guernsey would lose lots of business as a result of taxing the previously tax exempt companies would give rise to the question – lose it to where? The same applies to the second reason for adopting zero-10.

Our competitor jurisdictions such as Jersey and the Isle of Man had already decided to go down that route so we had to maintain our competitive position. That was true then, but that rationale disappears if they too are forced to comply with a new minimum tax rate. The only problem is that it might mean that all three territories, and others like us, start to lose their competitive edge over traditionally higher taxing countries. At 10% we may still have considerable allure, if it was set at 20% much of that would disappear, at 30% it would be gone.

What it would do is test the often made claim that our competitive tax regime is only one reason for business coming here.

The other being our pedigree as a finance centre and the skill base we have built up in the industry over several decades. While that’s all fine and dandy, I suspect we would soon struggle to retain business once it was seen that our tax regime was no more benign than those in finance centres in major on-shore jurisdictions.

A bit of loss of business because of a low minimum tax rate, but with more revenue generated from the business we do keep, might be no real disaster.

A major exodus because of a high minimum tax rate, amounting to global harmonisation, would hole us below the waterline.

In the latter case it might even be worth risking the potential kamikaze consequences of giving a two-fingered salute to the world’s most powerful nations.

Let’s not get carried away, though, first they have to agree among themselves.

Viewed from Guernsey, the G20 just became a very exciting white knuckle ride.