On June 5, the G7 finance ministers agreed in principle on a global tax reform, which is being celebrated as a “historic” agreement.
The agreement consists of two pillars – the first requires MNCs to pay taxes in the countries in which they operate, not just where they are headquartered, and the second pillar commits itself to a minimum global corporate income tax of at least 15 percent on a country basis.
This proposal will be put up for discussion at the G20 meeting in July, and as we await the full details of the deal, a full assessment suggests that it could significantly boost revenue collection in major economies, including India.
A global debate about such a reform has been going on for some time. However, the pandemic has now accelerated the pace and the need for wider agreement on this issue.
Countries around the world have embarked on an unprecedented spending spree to support their economies, which have been badly hit by the COVID-19 induced restrictions. As a result, national debt has skyrocketed and budget deficits are expected to remain high in the short term, forcing countries to look for ways to strengthen their fiscal capacities and reshape the global tax system.
So will the transition to a global minimum tax lead to a shift in investment out of low-tax countries? Will it get policymakers to review tax incentives?
Will it ensure a level playing field where non-tax factors play a greater role in investment decisions? In addition, will it lead to a significant increase in global income tax that could support economic recovery in a post-COVID world? To discuss this, Shereen Bhan spoke with Renu Narvekar, Global Head of Taxation at TCS; Matthew Mealey, International Tax & Transactions Services at EY and Sudhir Kapadia, Partner & National Tax Leader at EY India.
Watch the video to learn more.