G7 Nations agree on global minimum tax of at least 15%
Part of: GS Prelims and GS -II – International Relations & GS-III – Economy
- 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.