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Source: Livemint
What is the News?
India and the 129 countries have backed a Global Minimum Corporate Tax. It will keep multinational firms from avoiding taxes by shifting their profits to countries with low rates.
What was the need for the Global Minimum Corporate Tax(GMCT) deal?
- Governments have long-faced the challenge of taxing global companies operating across many countries.
- At the moment, companies can set up local branches in countries that have relatively low corporate tax rates and declare profits there.
- That means they only pay the local rate of tax, even if the profits mainly come from sales made elsewhere.
- Hence, such erosion of the tax base has prompted nations to come together for a Global Minimum Corporate Tax(GMCT) deal.
What does the GMCT deal contain?
- Global Minimum Corporate Tax(GMCT) allows home governments to “top-up” their taxes to the agreed minimum rate. It will eliminate the advantage of shifting profits to a tax haven.
- A tax haven is generally an offshore country that offers foreign individuals and businesses little or no tax liability in a politically and economically static environment.
Key Provisions of the deal:
- The deal commits countries to a global minimum corporate tax rate of 15% to avoid countries undercutting each other.
- Besides this, markets for Multinational Companies(MNCs) will get taxation rights.
- MNCs with global sales above €20 billion and profit before tax above 10% will be covered initially by the global tax.
- In addition, countries will be able to tax any MNC with revenues of €1 million or more in that market.
Potential Impact on India:
- There’s no need for India to tweak its corporate tax rate, as it is already either on a par with or above the proposed 15% global minimum tax.
- India will get new taxation rights over offshore digital economy companies accessing Indian consumers.
- Moreover, once the deal materializes, India is expected to remove its equalization levy on digital economy firms.
