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What is the News?
The US Treasury Secretary has urged the world’s 20 advanced nations to move in the direction of adopting a Global minimum corporate income tax.
What is the Global minimum corporate income tax?
- It is a type of corporate tax. Under this, If a company moves some of its operations to another country having low-tax jurisdiction, then the company have to pay the difference between that minimum rate and whatever the firm paid on its overseas earnings.
- For example, assume Country A has a corporate tax rate of 20 percent and Country B has a corporate tax rate of 11 percent. If the global minimum tax rate is 15 percent. Consider a situation, where Company X is headquartered in Country A, but it reports income in Country B. Then Country A will increase the taxes paid by Company X. This is equal to the percentage-point difference between Country B’s rate and the global minimum rate(15 percent).
In short, Company X will have to pay an additional 4 percent of the tax to Country A.
Why this Global Minimum Corporate Tax Rate move?
- The goal of a global Corporate minimum tax is to end a 30-year race to the corporate tax rates.
- Over the past decades, a number of countries have enacted tax policies specifically aimed at attracting multinational business. These countries attract investment by lowering corporate tax rates. This, in turn, has pushed other countries to lower their rates as well to remain competitive.
- Responding to the incentives created by these laws, many multinational corporations have moved their assets to low tax countries. Particularly their ownership of the intellectual property to countries offering them low or even no-tax treatment for the assets they produce.
- This has impacted countries around the world. As they lose out on an estimated $100 billion per year in tax revenue. India’s annual tax loss due to corporate tax abuse is estimated at over $10 billion.
What is the US proposal?
- The US has proposed a 21% Global minimum corporate tax rate. Further, the US also suggests cancelling exemptions on income from countries that do not legislate a minimum tax. This aims to discourage the shifting of multinational operations and profits overseas.
India’s Stand on Global Minimum Corporate Tax Rate:
- Indian Government has said that it is open to participate and engage in discussions about the Global Minimum corporate tax structure.
- It said that the government will look into the pros and cons of the new proposal and take a view thereafter.
Source: Indian Express