What is the Global Minimum Tax Deal? Explained.


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Last Thursday, 130 countries, including India, agreed to impose a global minimum tax of 15% on huge multinational corporations in an effort to rein in large wealthy global tech businesses that pay only a small percentage of their revenues in taxes.

 Let's understand the following in this article.

  1. What is Global Minimum Tax Deal?
  2. What has led to the concept of the Global Minimum Tax Deal?
  3. What is India's Position on this matter?

What is About Global Minimum Tax Deal?

  • This proposal calls for all governments to levy a minimum tax of 15% on transnational corporations. 
  • The US suggested this tax as a countermeasure to significant worldwide multinational corporations' efforts to avoid paying taxes in their home countries. 
  • It aspires to create a taxation framework that is appropriate for a digital and globalized environment.
  • It is a component of the comprehensive framework on base erosion and profit shifting agreed upon by G20 and Organization for Economic Cooperation and Development countries.
  • It is built on two pillars: re-allocating an additional share of profit to market jurisdictions and imposing a minimum tax.
What has led to the concept of the Global Minimum Tax?
  • Intangible income from drug patents, software, and intellectual property royalties is increasingly shifting to these jurisdictions, allowing firms to avoid paying higher taxes in their conventional home countries.
  • The minimum tax and other requirements are intended to end decades of tax competition among governments in order to attract foreign investment.
  • The initiative to set a baseline minimum tax rate across countries comes following heightened scrutiny of the massive profits produced by global corporations such as Facebook and Alphabet.
  • This levy was enacted particularly to ensure that large technology corporations are subject to taxation. 
  • Because these companies do not have a large physical presence in any country, such as a factory or place of business, they can channel their earnings from their digital operations to low-tax jurisdictions, allowing them to save taxes on their profits.
What is India's position on this matter?
  • India has been a vocal supporter of taxing huge internet corporations that generate a significant portion of their revenue in India due to their large user base. 
  • It was the first country to implement an equalization levy. 
  • It required entities paying a non-resident corporation for internet marketing to subtract this tax before making the payment.
  • India favors a unified solution that is straightforward to execute and follow. Meanwhile, the solution should result in the provision of meaningful and long-term revenue to market jurisdictions, notably for developing and emerging economies, according to the government statement.

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