• World economy shrunk by 3.5% in 2020 – global
pandemic.
 Forced countries to rely on taxations.

• Loopholes are exploited by the multinational national companies (MNCs) to avoid taxation.
 Tax avoidance – Use of legal methods to minimize the amount of income tax owed
by an individual or business. • Global minimum corporate tax – to plug the loopholes in international taxation regime.

G7 Agreement

• Finance Ministers of G7 nations agreed to set a global minimum tax of at least 15% • G7 – Broader efforts under way through the G20/OECD to address tax challenges arising from globalisation and digitalisation of economy.
 G7 – Canada, France, Germany, Italy, Japan,
the United Kingdom and the United States.
 G20 – forum for the governments and central
bank governors from 19 countries and the European Union (EU).
 OECD – group of countries – discuss and develop economic and social policy.

Need for Global Tax

• Last decade – rapid and relentless march of
technological advancement – global communications and connectivity.

• 2016 – digital sphere estimated at $11.5 trillion (over one-sixth of global GDP).

 Increase in digitalisation exacerbated the challenge of taxing multinational corporations.

• MNCs avoid taxation by shifting their revenue to tax havens – huge loss of revenue tocountries

• Organisation for Economic Co-operation and Development (OECD) – estimated countries are collectively deprived of $240 billion in tax revenue annually.
 OECD + G20 – spearheading ‘Inclusive Framework on Base Erosion and Profit
Shifting’ – aimed at ending tax avoidance.

• Secretary-General of OECD – Mathias Cormann, welcomed the global tax.
 Tax avoidance can only be effectively addressed through a multilaterally agreed solution.
• Base Erosion and Profit Shifting (BEPS)
 A tax evading practice by multinational companies – shifting their incomes or profits to their subsidiaries, located in low tax countries.
 Erosion in tax base & shifting of profits to other countries.
 Problems:
 Undermines the fairness and integrity of tax systems.
 Undermines voluntary compliance by all taxpayers.
 Affects the developed and developing countries, which
mainly relies on corporate income tax.

• Inclusive Framework on BEPS
 initiated by OECD and G20 grouping
 A modern international tax framework – ensures profits are taxed where economic activity and value creation occur.
 135+ countries implementing 15 Actions.
 India – a member.

Benefits

• G7 agreed on an equitable allocation of taxing rights.
 Awards market countries taxing rights on at least 20% of profit exceeding a 10%
margin for the largest and most profitable multinational enterprises.

• Highly beneficial to India.
 India losing more than $10 billion in revenue each year – Tax Justice Network.

Issues

• Local levies on digital transactions Counterproductive to the concept of GMCT.

• Lack of political will to ensure greater fairness and equity in revenue sharing.