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Source: The post is based on the article “Global Tax Evasion Report 2024” published in “EU” on 27th October 2023
Why in the News?
The European Union Tax Observatory has released ‘Global Tax Evasion Report 2024’.
What is the Global Tax Evasion Report 2024?
Released by: European Union Tax Observatory
Aim: To discuss tax evasion, the Global Minimum Tax (GMT) and measures to combat tax evasion.
Note: Tax evasion is the illegal act of not paying owed taxes to the government by under-reporting income, hiding money offshore or inflating deductions to reduce tax liability.
Key highlights of the report:
| 1.Tax Rates for Global Billionaires | Global billionaires often have effective tax rates as low as 0% to 0.5% due to the use of shell companies to avoid income taxation. |
| 2.Profit Shifting by Multinational Corporations (MNCs) | In 2022, MNCs shifted around USD 1 trillion to tax havens, equivalent to 35% of their profits earned outside their home countries. – “Greenwashing the Global Minimum Tax” allows MNCs to use ‘green’ tax credits to lower their tax rates below the 15% minimum. |
| 3.Challenges in Curbing Offshore Tax Evasion | Over the past decade, offshore tax evasion has reduced, with only 25% of previously untaxed wealth remaining. – However, challenges persist such as non-compliance by offshore financial institutions and limitations in sharing bank information automatically. |
Key recommendations of the report:
1.Global Minimum Tax for Billionaires: Proposes a global minimum tax of 2% on billionaires’ wealth to increase government revenue and reduce wealth inequality.
2.Reform Corporate Taxation: Reform international agreements on minimum corporate taxation by implementing a 25% tax rate and eliminating tax competition loopholes.
3.Unilateral Measures for Tax Collection: Implement unilateral measures to collect taxes from multinational companies and billionaires if global agreements fail.
4.Global Asset Registry: Work towards establishing a Global Asset Registry to enhance the fight against tax evasion.
5.Strengthen Economic Substance and Anti-Abuse Rules: Strengthen the application of economic substance and anti-abuse rules to deter tax avoidance and evasion.
UPSC Syllabus Topic: Taxation- Indian Economy
