Global minimum tax at least 15% : G7 Nations
Source : Indian Express
GS II : Important International institutions, agencies and fora- their structure, mandate

Why in News ?

G7 Nations back a minimum global corporation tax rate of at least 15 per cent landmark deal to close cross-border tax loopholes used by some of the world’s biggest companies.

Key Facts

• Pact signed by G7 Nations group to back a minimum global corporation tax rate of at least 15 per cent.
• It would put in place measures to ensure taxes were paid in the countries where businesses operate.
• Global Impact 
  • Global minimum tax rate of 15 per cent works well for US and most other countries in western Europe
  • This may face challenge from some low-tax European jurisdictions such as the Netherlands, Ireland and Luxembourg and some in the Caribbean which rely largely on tax rate arbitrage to attract MNCs.
  • The decision to ratify a 15% floor rate follows from a declaration of war on low-tax jurisdictions around the globe.
  • It to discourage the shifting of multinational operations and profits overseas.
• What is the concern ?
  • The pact Impinges on the right of sovereign nations to decide a nation’s tax policy.
  • Also countries cannot be able to take decisions that suites them.
  • Impacts companies using low-tax jurisdiction to achieve low global tax cost.
• The decision taken by the G7 countries will be placed before G20 countries.
  • G7 agreement will have a lot of weight in the G20/OECD discussions.
  • It would require a lot of work to reach global consensus.

What is Global minimum tax at least 15% : G7 Nations ?

• Governments could set whatever local corporate tax rate they want.
• If companies pay lower rates in a particular country, their home governments could increase their taxes to the minimum rate.
• This will eliminating the advantage of shifting profits.

How this decision impact India ?

• Global minimum tax at least 15% will benefit India as the effective domestic tax rate is above the threshold of 15% and the country would continue to attract investment
• The pact is expected to benefit India as it is a big market for a large number of tech companies.
• Other things that favoured Indian markets are 
  • Large internal market
  • Quality labour at competitive rates
  • Strategic location for exports
  • Thriving private sector
• India in fact  find it very difficult to keep corporate tax rates artificially lower in order to increase foreign direct investments in the country.

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