#G7#MinimumCorporateTax

Is Minimum Corporate Tax justified?

The G7 nations have proposed in a meeting held in Buckingham on June 5, 2021 to

impose minimum corporate tax (MCT) @15% on MNC's primarily the big tech giants
(FAAG), irrespective of which country they provide digital services to earn revenues
and the country they belong to. In both the cases, the MNC's may have to pay MCT
@15% under the proposal.

The issue is - that companies follow a system of locating their business wherever the
tax rate is lower and opt for tax avoidance. In response, the countries especially
Netherlands, Ireland, Luxembourg, Western Europe have also resorted to slash their
corporate tax rates to attract MNC's. MNC's opt to create many of their subsidiaries
to make maximum profits out of major markets in low-tax countries. As a result,
other service recipient countries lose out on tax revenues.

Challenge of the G7 proposal may be that some countries will have to reorient their
existing tax structure and the accounting for companies at the backdrop of the new
taxation could be tricky. Secondly, the threshold of 15% MCT as a norm might bring
transparency but question is "Will every country accept this proposal especially when
it is tabled amongst G20?" The countries which aren't doing well economically, lower
tax rate will not push their economy.

India loses annual tax loss at over $10 billion and US Treasury loses nearly $50 billion
a year due to corporate tax evasion. This proposal will turn good for India as
companies wouldn't hesitate investing in India irrespective of the tax rate being
retained higher than 15% since we have made significant progress globally by now.

Will it be feasible to have uniform MCT for all the nations? The proposal will emerge
with many issues as it moves forward for discussions.

By –

Criti Mahajan