23-06-2021 | 13:48 PM
G7 deal on Minimum Global Corporate Tax
• A group of the world’s richest nations reached a landmark deal to close cross-border tax loopholes used by some of the world’s biggest companies.
• The Group of Seven (G7) would support a minimum global corporation tax rate of at least 15%.
Key Points
• The deal aims to end what the U.S. Treasury Secretary has called a “30-year race to the bottom on corporate tax rates” as countries compete to lure multinationals.
• Agreement was signed by finance ministers of the United Kingdom, United States, Germany, Canada, France, Italy and Japan.
• It opens a way for levies on multinational companies in countries where they operate rather than just where they are headquartered.
Minimum Global Tax Rate:
• G7 would back a minimum global corporation tax rate of at least 15%, and put in place measures to ensure taxes were paid in the countries where businesses operate.
• Corporation tax is a direct tax imposed on the net income or profit those enterprises make from their businesses.
• It would apply to companies’ overseas profits. Therefore, if countries agree on a global minimum, governments could still set whatever local corporate tax rate they want.
• But if companies pay lower rates in a particular country, their home governments could “top-up” their taxes to the agreed minimum rate, eliminating the advantage of shifting profits to a tax haven.
• Under the new tax system, countries, where big firms operate, would get ‘right to tax’ at least 20% of profits.
NOTE: India is likely to benefit from the global minimum 15 per cent corporate tax rate deal because the effective domestic tax rate is above this threshold and it would continue to attract investment.
