NEW DELHI: Recently, the US Treasury Department had suggested a global minimum corporate tax rate of at least 15 per cent. The treasury department in a press release said that 15 per cent is a floor and that discussions should continue to be ambitious and push that rate higher.
Earlier, the US has suggested a minimum tax rate 21 per cent.
Experts say 15 per cent rate seems reasonable since many developing countries tend to have lower rate to promote investments. The new minimum rate suggested by the US is now much closure to the 12.5 per cent rate suggested by OECD, and experts say that there is now greater chance that the OECD proposal of 12.5 per cent might find favour with more countries.
The idea behind having a minimum corporate tax rate is to check the practice of large corporations shifting their bases to low or no tax regimes to avoid paying taxes in their home countries where corporate tax rates are higher.
The US treasury department said in a statement that the "international tax architecture must be stabilized, the global playing field must be fair and we must create an environment in which countries work together to maintain our tax bases and ensure the global tax system is equitable and equipped to meet the needs of the 21st century global economy."
"It is imperative to work multilaterally to end the pressures of corporate tax competition and corporate tax base erosion," the US Treasury in a statement.
Amit Maheshwari, Tax Partner, AKM Global, a tax and consulting firm says: "The move by the US for a global minimum tax rate would discourage US companies from shifting operations or profits to lower-tax jurisdictions as they mostly do it because of income from intangible sources such as patents, software and royalties on intellectual property to save them from paying higher taxes in their traditional home countries."
It is interesting to note that US president Joe Biden has proposed increasing US corporate tax rate from 21 per cent to around 28 per cent even as the US treasury is now pitching for a global minimum tax rate of 15 per cent.
The Organisation of Economic Cooperation and Development (OECD), an intergovernmental economic organisation with 37 member countries, has been under its Base Erosion and Profit Shifting (BEPS) project has been trying to achieve a global minimum tax rate to curb tax competition among countries. The minimum rate suggested by OECD is 12.5 per cent.
Rajesh Gandhi, Partner, Deloitte India, says that since the 15 per cent rate is now closer to the 12.5 per cent rate suggested at the OECD, there is a greater chance that the OECD proposals could get impetus.
"Final determination of a global minimum rate would impact how the $100 billion pie of large MNCs is distributed amongst market economies," he says.
Impact on India
Will India lose its competitive advantage if the world accepts the US proposal to have a minimum corporate tax rate of 15 per cent?
India currently has a lowest corporate tax rate of 15 per cent for new manufacturing companies. For other corporates, the tax rate is 22 per cent.
If as suggested by the treasury, the minimum tax rate is pushed higher than the proposed 15 per cent, then India might be in a piquant situation.
While global minimum tax rate should ensure an equitable global tax system, it is believed that it would result in the loss of competitive advantage for developing countries including India that use tax as a measure to attract investment, says Rakesh Nangia, Chairman, Nangia Andersen India.
Nangia, therefore, says that India should focus on remaining attractive and competitive across all areas, including ease of doing business, high quality infrastructure, skilled labour, etc.