Global Minimum Tax: After many years of hard work, finally the G-7 countries have agreed this time that the Global Minimum Tax will be kept at a minimum of 15 percent. Under this, the global corporate tax will be at least 15 percent, which will have to be paid in the country where the business is being done. Due to non-clearance of taxation, many countries used to suffer losses. Developed countries get very little tax from big companies like Google, Amazon, Facebook. After the implementation of the Global Minimum Tax, India will get the power to impose a tax of up to 15 percent on them. Let’s know the important things related to Global Minimum Tax.
Why the need for Global Minimum Tax?
Most countries want to prevent multinational companies from diverting their profits and tax revenues to low-tax countries. Wherever these companies make sales, they divert profits to a country with low taxes. In this way, companies avoid paying more tax on the income earned from patents of drugs, software and intellectual property, etc., and divert them to the lower tax country. Due to this, there has been a need for Global Minimum Tax to save its earnings.
How far has the matter reached?
The OECD (Organization for Economic Co-operation and Development) has been negotiating taxes with 140 countries for years. These talks are going on between all the countries to impose tax on digital services as well as to prevent tax evasion. Under this, there is also talk of Global Corporate Minimum Tax. Both the OECD and the G-20 countries can reach a decision on this by the middle of this year. After this, low-tax countries will not be able to oppose the agreement. The OECD estimates that after this companies could have to pay additional taxes of up to $50-80 billion worldwide.
How will this work?
Global minimum tax rates will be applicable on overseas profits. Even after this, governments will be able to levy local corporate tax on their own, but if companies pay less tax in any country, then the government of that company’s country can increase the tax to the minimum rate, so that tax by shifting the profit to another country. save can be prevented. The OECD said last month that governments have agreed on the basic design, but rates are yet to be agreed upon.
What does this mean for India?
Now the biggest and important question is that after all, what will be the effect of fixing the global minimum tax rate at 15% on India? If there is a company in India that is paying earnings to a low-tax country, then India will have the right to tax this earnings, provided that earnings are linked to digital income. Countries such as Ireland, Luxembourg, and the Netherlands are among the low-tax countries.