The Group of Seven or G7 countries have agreed on a "historic" deal to impose a global tax on multinational corporations. The proposal is aimed at reducing tax evasion committed by large multinational corporations that often shift their base of operations to regions with lower tax rates.
tax The deal agreed in principle by the finance ministers of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States is likely to be put before a G20 meeting in July.
While tax havens like Netherlands, Ireland, Luxembourg, Cayman Islands and Hong Kong will feel the repercussions of such a deal, countries like India stand to gain a lot.
What is the Proposal?
Three major decisions had been taken in the meeting -- multinational corporations will be forced to pay taxes on overseas profit; the minimum corporate tax rate of 15 percent will be imposed globally; and finally, countries would be able to tax share of profit on companies "that have no physical presence but have substantial sales."
"We commit to reaching an equitable solution on the allocation of taxing rights, with market countries awarded taxing rights on at least 20 percent of profit exceeding a 10% margin for the largest and most profitable multinational enterprises. We will provide for appropriate coordination between the application of the new international tax rules and the removal of all digital services taxes, and other relevant similar measures, on all companies. We also commit to a global minimum tax of at least 15 percent on a country-by-country basis. We agree on the importance of progressing agreement in parallel on both pillars and look forward to reaching an agreement at the July meeting of G20 finance ministers and central bank governors," the G7 finance ministers and central bank governors communiqué said.
What it Means for India
In 2019, Finance Minister Nirmala Sitharaman announced a decrease in corporate tax rates for domestic companies to 22 percent and for new domestic manufacturing companies to 15 percent. Tax rates on foreign companies are dependent on bilateral tax agreements between nations but range around similar figures.
Since these tax rates are above the minimum threshold of 15 percent, India would not need to increase their tax rates, meaning that there would be no risk to investments coming into India. As other tax havens become less attractive to investors, investment into India might see a jump.
The decision for countries being able to tax companies earning profits through digital sales without a physical presence means that India will be able to tax many large companies that have significant sales in the country but no physical presence.
Consulting firm AKM Global Tax Partner Amit Maheshwari told PTI that India is a big market for a large number of tech companies and can stand to benefit immensely.
"It remains to be seen how the allocation would be between market countries. Also, the global minimum tax of at least 15 percent means that in all probability the concessional Indian tax regime would still work, and India would continue to attract investment," Maheshwari added.
However, as part of the agreement, India would have to stop imposing its separate digital services tax (DST) on large companies like Google and Amazon.
India levies two percent DST on revenues generated from digital services offered in India, including digital platform services, digital content sales, and data-related services.
(Edited by : Shoma)
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!
