{"id":110371,"date":"2021-06-05T09:13:10","date_gmt":"2021-06-05T03:43:10","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=110371"},"modified":"2021-06-05T09:13:10","modified_gmt":"2021-06-05T03:43:10","slug":"road-towards-a-global-minimum-corporate-tax","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/road-towards-a-global-minimum-corporate-tax\/","title":{"rendered":"Road towards a Global Minimum Corporate Tax"},"content":{"rendered":"\n<p><b>Synopsis<\/b><span style=\"font-weight: 400;\">:<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The US has proposed a 15% <a href=\"https:\/\/forumias.com\/blog\/what-is-global-minimum-corporate-income-tax\/\" target=\"_blank\" rel=\"noopener\">Global Minimum Corporate Tax<\/a> that will prevent tax avoidance by companies. The tax would be beneficial for India. But many counties will not accept the tax structure.<\/span><\/p>\n<p><b>Background:<\/b><\/p>\n<p>The<strong>\u00a0Base Erosion and Profit Shifting (BEPS) programme<\/strong>\u00a0were<strong>\u00a0initiated in 2013<\/strong>. It aims to curb practices that allowed companies to reduce their tax liabilities by exploiting loopholes in the tax law. But to tax Big tech companies the countries have to sign a BEPS agreement among themselves.<\/p>\n<p>So the OECD also asked the countries in the BEPS framework to adopt a consensus-based outcome instead of the country\u2019s individual moves.<\/p>\n<h5><strong>Challenges to the BEPS framework:<\/strong><\/h5>\n<ul>\n<li>Over the past decades<strong>,\u00a0<\/strong>there are many countries that enacted tax policies specifically aimed at attracting multinational business. These countries\u00a0<strong>attract investment by lowering corporate tax rates<\/strong>. This, in turn, has pushed other countries to lower their rates as well to remain competitive.<\/li>\n<li>Also, there are few Developing countries as well that are not sure if they will receive the right to tax the mobile incomes of Big tech companies<\/li>\n<\/ul>\n<p><strong>The OECD policy note:<\/strong><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Addressing these concerns, On 12 October 2020, the OECD\/G20 Inclusive Framework on base erosion and profit shifting (BEPS) released \u2018blueprints\u2019 on Pillar One and Pillar Two.\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It aims to reach a multilateral consensus-based solution to the tax challenges due to the digitalization of the world economy.<\/span><\/li>\n<li><strong>Pillar 1:<\/strong>\u00a0It addresses the issue of reallocation of taxing rights to all the countries<\/li>\n<li><strong>Pillar 2:<\/strong>\u00a0This pillar aims to address all the remaining issues in the BEPS program.<\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The US has recently put forward a proposal to impose a 15% Global Minimum Corporate Tax on companies in consonance with Pillar two.<\/span><\/li>\n<\/ul>\n<h5><strong>What is Global Minimum Corporate Tax?<\/strong><\/h5>\n<ul>\n<li>It is a type of corporate tax. Under this, If a company moves some of its operations to another country having low-tax jurisdiction, then the company have to pay the difference between that minimum rate and whatever the firm paid on its overseas earnings.<\/li>\n<li><strong>For example,\u00a0<\/strong>assume Country A has a corporate tax rate of 20 percent and Country B has a corporate tax rate of 11 percent. If the global minimum tax rate is 15 percent. Consider a situation, where Company X is headquartered in Country A, but it reports income in Country B. Then Country A will increase the taxes paid by Company X. This is equal to the percentage-point difference between Country B\u2019s rate and the global minimum rate(15 percent).<br \/>\nIn short, Company X will have to pay an additional 4 percent of the tax to Country A.<\/li>\n<\/ul>\n<h5><b>The rationale behind the <span style=\"font-weight: 400;\"><strong>15% Global Minimum Corporate Tax<\/strong> <\/span>proposal<\/b><span style=\"font-weight: 400;\">:<\/span><\/h5>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The US aims to minimize tax incentives and force companies to choose a place in a particular country based on commercial benefits.<\/span>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">For example, It is intended to discourage American companies from inverting their structures and operate outside the US, due to the increase in the U.S. corporate tax rate.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The proposal, if passed, will give other countries the right to <\/span><b>\u201ctax back<\/b><span style=\"font-weight: 400;\">\u201d. For example, countries can tax,\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Other jurisdictions have either not exercised their primary taxing right or\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Have exercised it at low levels of effective taxation.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h5><b>Challenges surrounding the proposal<\/b><span style=\"font-weight: 400;\">:<\/span><\/h5>\n<ul>\n<li style=\"font-weight: 400;\"><b>First<\/b><span style=\"font-weight: 400;\">, the OECD was considering a 10-12% Global rate. A high rate of 15% may not be accepted by smaller countries like Ireland. Ireland charges a marginal rate of 12.5 %. They argue that a Global minimum tax would impair fiscal autonomy for smaller jurisdictions to compete with larger economies.<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Second<\/b><span style=\"font-weight: 400;\">, the US had earlier proposed a rate of 21% that would have generated greater revenues. However, a proposal of a 15% rate may not be passed by the US congress.<\/span><\/li>\n<\/ul>\n<p><b>India and the Global Minimum Corporate Tax rate<\/b><span style=\"font-weight: 400;\">:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">India did not object to the proposal as the same would generate additional revenue for the country.<\/span>\n<ul>\n<li style=\"font-weight: 400;\"><b>The State of Tax Justice report of 2020 <\/b><span style=\"font-weight: 400;\">states that India loses over $10 billion in tax revenue due to the use of offshore structures. The popular locations include Mauritius, Singapore, and the Netherlands where there is an almost negligible rate of taxation.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">If passed, the Indian government can impose a tax on offshore subsidiary units of Indian companies. The taxation can be to such a level that it enables the imposition of an effective Global Minimum Tax on every company.\u00a0<\/span><\/li>\n<\/ul>\n<p><b>Suggestions<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The <a href=\"https:\/\/forumias.com\/blog\/india-needs-to-be-cautious-before-joining-global-minimum-tax-rate\/\" target=\"_blank\" rel=\"noopener\">acceptance of a Global Minimum Corporate Tax<\/a> would induce the countries to compete on other factors like better regulatory regimes, ease of doing business, access to global talent, etc.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">However, if consensus is not built on a 15% rate, then the US can apply its domestic law version of Pillar Two at a rate of 21%.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Nonetheless, the countries should focus on encouraging trade and economic activity in the post-pandemic era rather than debating over disagreements on tax allocations.<\/span><\/li>\n<\/ul>\n<p><b>Source<\/b><span style=\"font-weight: 400;\">: <\/span><a href=\"https:\/\/epaper.thehindu.com\/Home\/ShareArticle?OrgId=GV68KRMC2.1&amp;imageview=0\"><span style=\"font-weight: 400;\">The Hindu<\/span><\/a><span style=\"font-weight: 400;\">\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Synopsis: The US has proposed a 15% Global Minimum Corporate Tax that will prevent tax avoidance by companies. The tax would be beneficial for India. But many counties will not accept the tax structure. Background: The\u00a0Base Erosion and Profit Shifting (BEPS) programme\u00a0were\u00a0initiated in 2013. It aims to curb practices that allowed companies to reduce their&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/road-towards-a-global-minimum-corporate-tax\/\">Continue reading <span class=\"screen-reader-text\">Road towards a Global Minimum Corporate Tax<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,1351,1310,9],"tags":[1308,1354],"class_list":["post-110371","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-daily-news","category-daily-news-updates","category-public","tag-eco_0","tag-eco_3","entry"],"jetpack_featured_media_url":"","views":{"total":2,"cached_at":"","cached_date":1699973082},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/110371","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=110371"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/110371\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=110371"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=110371"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=110371"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}