What G7 corp tax rate means for India

It’s critical to get the tax rules right with levies evenly applied but hard to avoid even by savvy bean counters who often manage to get a drop on minimising income tax bills.

Globally too, the love-hate relationship with tech giants is common as they pay fewer or no taxes. (Representational Image)

Last week, the G7 agreed on a minimum corporate tax of at least 15 per cent. In the past, the OECD pegged $100 billion in tax gains, or 4 per cent of global corporate profits, should countries settle for a 12.5 per cent minimum tax rate. It means, at 15 per cent, global tax gains will be higher. One of the other critical components of the proposed supranational policy is that profitable multinationals must pay tax in countries they operate. While this is welcome, it’s possible that companies will put up a stiff resistance and if governments fail to negotiate, it’ll be back to where it all began.

But instead of the G7 that includes only rich countries, G20—comprising a diverse geopolitical coalition—can have more pull, even though such a sign-off won’t mean worldwide implementation. Much depends on negotiations under the OECD framework comprising 139 countries and it’s likely that their meeting this month end will see diverging views from low-income and emerging economies, whose freedom and sovereignty to attract companies via low taxes will be effectively nixed. Interestingly, rich EU nations like Germany couldn’t even enforce a minimum rate among their member countries, some of whom are global tax havens—like Ireland, the Netherlands and Luxembourg. To think these nations are championing a minimum tax rate smacks of protectionism as developed countries, whose stimulus spends ran into trillions, have announced tax hikes and now fear a flight of corporates.

For India, more than the competitiveness of rates, it’s critical to determine its rights to tax profits of multinationals, who have significant presence and also because it has run into international tax disputes already. Globally too, the love-hate relationship with tech giants is common as they pay fewer or no taxes. For instance, Amazon paid zero income tax in 2018 on a profit of $11 billion! Precisely to counter this, India introduced a digital tax. It’s critical to get the tax rules right with levies evenly applied but hard to avoid even by savvy bean counters who often manage to get a drop on minimising income tax bills.