Question: What is Global Minimum Tax agreement? How will the proposal rationalize tax regime across the globe?
Answer: Global Minimum Tax agreement is a proposed decision to impose a minimum 15% corporate tax on multi-national companies to prevent erosion of profits.
The deal was pushed by OECD and the member countries account for 90% of global wealth. The deal will soon be signed.
- Governments can set local corporate tax rate based on their policy.
- If companies pay lower rates in a particular country, their home governments can set the taxes to the 15% minimum.
Reforms in tax regime
- Shore up revenues
After the pandemic, many economies are under stress. During such situation multinationals are using tax havens to shift profits. Governments need a law to get back the dues.
- Level playing field
There will not be tax rate competition between member countries. The advantage offered by tax havens will be lost if such law comes.
- Global commitment
Countries party to the deal must make a domestic law to give shape to this regime. It will ensure that all countries work together for a better world.
- It is expected that tax dues worth more than $500 million will be added to countries’ coffers. This can be used for social welfare and capital creation.
- Greater cooperation between member countries as there will not be competition to keep their tax rates lower and attract profit shifting.
- Governments cannot impose additional taxes on digital media and GAFA companies even in future.
- Still many countries have not signed the deal. They may hamper the progress made during negotiations.
Thus, global minimum tax will uphold global values based on international cooperation. It will be win-win for governments and also large companies.