G7 Nations agree on global minimum tax of at least 15%

  • IASbaba
  • June 8, 2021
  • 0
UPSC Articles

G7 Nations agree on global minimum tax of at least 15%

Part of: GS Prelims and GS -II – International Relations & GS-III – Economy 

In news

  • A group of the world’s richest nations reached a landmark deal to close cross-border tax loopholes used by some of the world’s biggest companies.
  • The Group of Seven (G7) would support a minimum global corporation tax rate of at least 15%. 
  • They would put in place measures to ensure taxes were paid in the countries where businesses operate.

How will it work? 

  • Global minimum tax rate would apply to Overseas profits. 
  • Governments could set whatever local corporate tax rate they want, but if companies pay lower rates in a particular country, their home governments could top-up their taxes to the minimum rate, thus eliminating the advantage of shifting profits. 
  • The Organisation of Economic, Cooperation and Development (OECD) has also been coordinating tax negotiations on rules for taxing cross-border Digital Services and curbing tax base erosion, including a global corporate minimum tax. 
  • Also, countries would lose the device used to push policies that suit them once a global minimum rate is put in place. 

Impact on India 

  • The decision is likely to benefit India as India has wanted to keep corporate tax rate artificially lower to attract FDI in comparison to tax havens or low taxation countries. 

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