The minimum tax is intended to prevent countries like Singapore and Ireland with lower tax rates from encouraging multinational corporations to set up regional bases
The G7 countries recently agreed on a minimum global tax rate of 15 percent, but India is starting to worry. In their talks on Tuesday, US Treasury Secretary Janet Yellen and Treasury Secretary Nirmal Sitharaman debated the issue, but it is becoming clear that India is opposed to the idea of allowing the US – which supports the tax plan – to dictate the country’s tax laws.
“(Janet) Yellen has discussed that the US and India have a common interest in introducing a robust global minimum tax,” said a press release from the US Treasury Department late Tuesday evening.
During the call, Yellen stressed the importance of partnering with India in the G20 and OECD to seize a golden opportunity to reshape the international tax system and help the world economy flourish, the US press release said.
The G7 heads of state and government also stated in their communique that multinational companies with a profit margin of 10 percent are taxed on at least 20 percent of profits that exceed this profit margin in the countries in which they operate.
However, the G7 said countries like India should abolish the 2 percent countervailing levy it charges foreign online businesses.
The minimum tax is intended to prevent countries like Singapore and Ireland with lower tax rates from encouraging multinational corporations to set up regional bases. It will take a while for the 139 nations to agree to such a tax, which will be one of the two pillars that underpin the larger plan to ensure that MNCs pay fair taxes in the countries they operate in.
North Bloc officials have indicated that the government cut corporate tax rates to 25 percent and 15 percent for existing and start-up businesses back in September 2019, while the economic uncertainty caused by Covid-19 will not improve business sentiment
Tax experts said India’s effective tax rate is still above the global minimum tax rate, which would not affect companies doing business in India.
“Even the recently announced lower rate of 15 percent for new manufacturing facilities in India is just barely reaching this new threshold and not affecting this much-needed increase in production in India,” said Sudhir Kapadia, EY India’s national tax officer.