DUBAI: An agreement among the Group of Seven (G7) advanced countries to set a minimum global corporate tax rate of 15 percent is expected to have far reaching implications for Gulf economies as they seek to attract multinationals.

Japanese Finance Minister Taro Aso on Tuesday told reporters that countries realized they could no longer rely on the race to the bottom on corporation tax cuts to generate growth in their economies.

“Now that the course of direction has been shown, the possibility (of a tax deal) will rise at G20. It had a big impact on raising the momentum,” Aso said.

The G7 comprises the US, Japan, Germany, Britain, France, Italy and Canada. The larger G20 also includes Saudi Arabia, the only Gulf country in the group.

Analysts expect the adoption of the new rules to gradually change the regional tax base with the move likely to affect some Gulf economies more than others depending on the number of multinational corporations operating in them.

It also represents a potentially delicate balancing act for Arab governments trying to attract increased foreign direct investment.

“From a GCC context, greater clarity is needed to gauge any potential economic impact,” ADCB chief economist Monica Malik said in a note to clients. “We still see the region remaining a low tax environment — both on a corporate and individual basis. However, for companies that will fall under the new framework (likely centered on digital businesses) the impact could be significant. In the medium term, the global tax developments could result in a broadening of corporate taxes in the region, especially if an international base is established, alongside greater tax income from large multinationals.”

Gulf economies have long attracted both individuals and companies through either no or low taxation. However ongoing reforms aimed at providing more stable government revenue streams and a reduced reliance on hydrocarbon revenues have already placed a greater emphasis on taxation — most notably with the recent introduction of value added tax in countries such as the UAE and Saudi Arabia.

Corporate taxation was also one of the big themes of last year’s Saudi presidency of the G20. Saudi Finance Minister Mohammed Al-Jadaan welcomed the agreement among G7 countries this week.

Emirates NBD chief economist Khatija Haque told Bloomberg TV on Tuesday said that the wider adoption of the new G7 tax rules by the G20 and OECD would trigger regional changes also. However she said the number of companies initially affected may be comparatively small.

“When you look at those very large multinational corporations and tech companies, this region is not necessarily a huge share of their global income,” she said. “From a broader perspective, what will be more interesting is whether the region as a whole looks to extend that corporate tax to other perhaps smaller foreign-owned companies or companies that have some foreign ownership. That is something they will have to manage quite carefully because there is very much a push to attract more FDI into the region and so they won’t want to jeopardize that by becoming too aggressive on corporate taxes.”