India is expected to benefit from the global corporate tax pact of at least 15% signed by the richest countries in the world, as the effective domestic tax rate is above the threshold and the country will continue to attract investment. tax experts said on Sunday.
Finance ministers from the G-7 countries, including the United States, United Kingdom, Germany, France, Canada, Italy and Japan, reached a landmark agreement on Saturday on the imposition of taxes. multinational corporations according to which the minimum global tax rate would be at least 15%. They also agreed to put in place measures to ensure that companies pay taxes in the countries where they operate, a measure aimed at closing cross-border tax loopholes.
Nangia Andersen India President Rakesh Nangia said the G7 commitment to a global minimum tax rate of 15 percent works well for the US government and most other Western European countries. However, some low-tax European jurisdictions such as the Netherlands, Ireland and Luxembourg and some in the Caribbean rely heavily on tax rate arbitrage to attract multinationals.
“The Global Compact would face the challenge of putting other major nations on the same page, as this infringes on the sovereign’s right to decide a nation’s tax policy,” Nangia added.
In September 2019, India had reduced the corporate tax for domestic companies to 22% and to 15% for new domestic manufacturing units. The preferential tax rate has also been extended to existing domestic companies, under certain conditions.
AKM Global Tax Partner Amit Maheshwari consulting firm said India stands to benefit as it is a big market for a lot of tech companies. “It remains to be seen how the distribution between the countries of the market would be made. In addition, the global minimum tax of at least 15% means that in all likelihood India’s concessional tax regime would still work and India would continue to attract investment, ”Maheshwari added.
EY India’s national tax officer Sudhir Kapadia said the Global Compact on Business Taxation was a pact for the future, especially for large developing countries like India, which would still have great difficulty in keeping corporate tax rates artificially lower in an attempt to increase much-needed foreign direct investment. investments in the country.
“Even the recently announced 15 percent lower rate for new manufacturing units in India roughly hits this new threshold, so not affecting that much-needed boost to manufacturing in India. Equally important is the explicit granting of taxing rights to “market countries” for a share of the global profits of multinational corporations, thereby aligning the right to tax with the place of economic contribution, ”Kapadia added.
The decision of the Group of Seven (G-7) advanced economies would be submitted to the G-20 countries, a group of developing and developed countries, at a meeting scheduled for July in Venice.
Nangia said that since India’s effective tax rate is always higher than the global minimum tax rate, it would not impact companies doing business in India. “The global minimum rate has an impact on businesses using a low tax jurisdiction to achieve a low global tax cost. In addition, India attracts foreign investment due to its large domestic market, quality workforce at competitive prices, strategic location for exports and a thriving private sector ”, a- he added.
Maheshwari said the G-7 deal will carry a lot of weight in the G20 / OECD discussions, but there is still a lot of work to be done to reach a global consensus. “Countries like Ireland are facing a tough time and may oppose this minimum tax rate. However, a minimum tax of 15 percent may not generate substantial income and it is possible that other countries want a higher minimum overall tax rate, ”he added.
In a statement released on Saturday, OECD Secretary-General Mathias Cormann said the consensus among G7 finance ministers, including on a minimum level of global taxation, is an important step towards the global consensus needed for reform the international tax system.
“There is still important work to be done. But this decision gives important impetus to the upcoming discussions between the 139 countries and jurisdictions that are members of the OECD / G20 Inclusive Framework on BEPS, where we continue to seek a final deal that ensures multinational companies pay their fair share everywhere, ”added Cormann.
Deloitte India partner Rohinton Sidhwa said the minimum tax rate advantage should increase by first giving the right to tax a slice of profit from large global digital multinationals. Second, it will end the various digital taxes that have proliferated around the world like the equalization levy in India, he said, adding that thirdly, it paves the way for changes to global tax treaties in accordance with consensus reached.