The G7’s push for corporate income tax of at least 15 percent is one of the boldest financial moves in some time. The G7 agreement takes up a proposal that the OECD has been pursuing for a long time.
The move at the G7 summit in Corbis Bay in Cornwall in Great Britain aims ambitiously to implement the proposal of the OECD (Organization for Economic Co-operation and Development, a group of 38 strong economies). However, there is still a long way to go before consensus outside the G7 (US, Canada, Japan, UK, France, Germany and Italy) can be reached.
India is a host country attending the G7 this weekend, although Prime Minister Modi will be attending via video conference. Australia, South Korea and South Africa are the other guest countries of the G7. Like others, the issue of corporate income tax should be pushed ahead with next month’s G20, of which India is a full member, early enough.
The corporate tax treaty at G7 hides many devils waiting in the details yet to be discovered. On the whole, “it’s a mixture of trying to get more taxes out of the super-profit multinationals and, to some extent, redistributing them to the countries where they do sales rather than traditionally paying their taxes,” John Cullinane, Director of Public Policy at the Chartered Institute of Taxation says CNBC-TV18.
India has a lot to negotiate here – and to negotiate. Some of the richer countries are pushing for taxes on sales rather than going to low-tax countries. The G7 countries want to rake in tax profits from sales instead of slipping them into a country like Ireland with a low corporate tax of 12.5 percent.
India may have to push for something other than these numbers negotiations. And that could mean going back to an earlier proposal to link taxation to headcount, not just sales.
ALSO READ | Global digital tax: this is why India may not accept the G7 proposal
India would very likely want to negotiate that, says Cullinane. “Something that puts less weight on sales and more weight on headcount might be more of a measure of where the company really stands and the value of what it does might be more beneficial.”
India will want to continue this proposal from its current position. “I can hardly imagine that India would lose compared to before, but there is a chance for more and maybe the Indian government is negotiating a slightly better result from an Indian perspective,” says Cullinane. “Focusing more on where the people work would be, in your opinion, the factor that would give India an advantage.”
That being said, the agreement could still bring some benefits to India, even if in its current form it is particularly suitable for the larger economies. “The focus on sales suits us very well, but it is not true that India is of no use,” says Cullinane. “The US multinationals are also active in India. You will be advertising revenue on some of these platforms that target the Indian market. These revenues could give India access to those profits that were previously unavailable. “
India could gain far more there if an agreement could at least significantly include the number of employees. India will clearly have no desire to manufacture cheaply so that companies can bring profits back to their countries – or to tax havens.
A broader agreement will not be easy to achieve and it will certainly be less easy to implement. “Ultimately, each country has to pass national laws that implement these taxes,” says Cullinane. “And they have to do this so that nobody can accuse them of discriminatory laws because they act according to internationally agreed standards.”
ALSO READ | In the wake of the global shift in power, the G-7 beckons India
Some countries are already talking about exceptions, above all Great Britain, which is proposing an exception for financial services. Each country will want to consider its own interests and these may not be the same in many of them and are likely to conflict. “If everyone has their own exceptions, it won’t work,” says Cullinane. “Calling for exemptions runs the risk of untangling the whole thing and suggests that negotiations are not yet over, despite the fact that victory has been announced.”
– London Eye is a weekly column by Sanjay Suri on CNBC-TV18 that gives an insight into the unusual business of London and the surrounding area.
Read his other columns here