06/07/2021 - Indian Economy

KEY POINTS

·        G7 finance ministers have, in principle, agreed to a global minimum corporate tax rate of 15% and taxation of profits based on country of sales aligned with the OECD workplan

·        MNCs, the G7 proposes, must pay taxes on at least 20% of the profit exceeding 10% margin in the country where they have sales, irrespective of physical presence.

·        The proposal has adopted a practical approach, of having a global minimum tax rate of 15% and not forcing tax-havens to increase their corporate tax.

Impact in India

·        India has long advocated the need to tax the digital economy and taxation based on location of customer.

·        In the absence of any global standard, India introduced the equalisation levy in 2016 that aims to tax the digital advertising revenue of MNCs like Facebook, Google, etc.

·        In 2020, the scope of equalisation levy was expanded to include foreign entities selling goods and services online to customers in India.

·        With the G7 countries agreeing to tax based on customer-location, India stands vindicated.

·        Further, the minimum tax rate of 15% will impact Indian MNCs with presence in low/no tax jurisdictions like the UAE, Cayman Islands, etc.

·        As per the State of Justice report, India loses $10 billion every year to global tax abuse. These reforms would help in plugging such tax abuse.

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