7th June 2021

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 Musings.......


Global Minimum Tax 


The recently concluded Group of Seven (G7) meeting of the worlds advanced economies gives hope. 


The G7 has reached a landmark agreement to pursue higher global taxation on multinational companies such as Google, Facebook, Apple and Amazon. 


So why do we need a Global Minimum Tax? The multinational companies have been shifting profits (and tax revenues) to low-tax countries. Income from drug patents, software and royalties on intellectual property have been migrated to tax havens- to avoid paying higher taxes in their traditional home countries. 


Originally it was the OECD ( Organisation for Economic Co-operation and Development ) that has been coordinating tax negotiations of over 140 countries for years ! 

Rules for taxing cross- border digital services and curbing tax base erosion. 


The OECD and G20 countries aim to reach a consensus on both these issues. 


The Global Minimum Tax rate would apply to overseas profits. Governments could still set whatever local tax rate they want, but if companies pay lower tax rate in a particular tax haven country, still their home government could tax to the minimum rate. This eliminates the advantage of shifting profits to tax havens. 


The area of contention among OECD countries is not on the basic design of minimum tax but on the rate. 

The G7 has decided on a minimum tax rate of 15%. 


The G20 meet next month will now decide whether there is a broad consensus on the Global Minimum Tax issue. 


What it means for countries like India is if income is paid from India to a country where the rate of tax is less than 15% ( eg. Ireland, Netherlands, Luxembourg etc. ) India will have the right to tax that income if there is a digital nexus. 


Like I said such a move instils hope. In these times of dire straits, middle and low income countries could do so much with the extra tax money which could be used to say for example poverty alleviation and other social sector welfare programmes like MNREGA.


After all all these Multinational Digital Corporations do depend on such middle- low income countries to make profits. 


Such a move would take us a step closer to Equity and the world becoming a Welfare state. 


Food for Thought.......


rohitchennithala.home.blog 


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