A majority of the worlds nations have signed a historic pact that could force multinational companies to pay their fair share of tax in markets where they operate and earn profits. One hundred and thirty-six countries, including India, agreed Friday to enforce a minimum corporate tax rate of 15%, and an equitable system of taxing profits of big companies in markets where they are earned. Kenya, Nigeria, Pakistan and Sri Lanka have not yet joined the deal.
The move is part of an evolving consensus that big multinationals are funnelling profits through low-tax jurisdictions to avoid paying taxes. The Organisation for Economic Cooperation and Development (OECD), comprising mostly developed economies, has led talks on a minimum corporate tax rate for a decade. A multilateral convention is to be signed next year.
The biggest impact is likely on Big Tech companies that have largely chosen low-tax jurisdictions to headquarter their operations.
What are the decisions taken?
The decisions effectively ratify the OECDs two-pillar package that aims to ensure that large multinational enterprises (MNEs) pay tax where they operate and earn profits.
The 15% floor under the corporate tax will come in from 2023, provided all countries move such legislation. This will cover firms with global sales above 20 billion Euros ($23 billion) and profit margins above 10%. A quarter of any profits above 10% is proposed to be reallocated to the countries where they were earned, and taxed there.
The move follows an earlier agreement among the G7 economies in London in June. The two-pillar solution will be delivered to the G20 Finance Ministers meeting in Washington DC on October 13, and then to the subsequent G20 Leaders Summit in Rome.
The two-pillar solution, according to Sumit Singhania, Partner, Deloitte India, will result in a redistribution of $125 billion taxable profits annually, and ensure MNEs pay minimum 15% tax once this is implemented. A consensus on global minimum tax will practically make tax competition amongst nations rather unfeasible by narrowing down any such opportunities to rarest circumstances In the end, two-pillar solutions ought to be reckoned as enduring overhaul of a century old international tax regime, thats here to change the rule of the global profit allocation amongst taxing jurisdictions completely.
Why the minimum rate?
The new proposal is aimed at squeezing the opportunities for MNEs to indulge in profit shifting, ensuring they pay at least some of their taxes where they do business. According to Amit Singhania, Partner, Shardul Amarchand Mangaldas & Co., the two-pillar solution will ensure that once again, the world will be global, at least in following the principles of taxation rather than following territorial laws.
In April this year, US Treasury Secretary Janet Yellen had urged the worlds 20 advanced nations to move in the direction of adopting a minimum global corporate income tax. A global pact works well for the US government at this time. The same holds true for most other countries in western Europe, even as some low-tax European jurisdictions such as the Netherlands, Ireland and Luxembourg and some in the Caribbean rely largely on tax rate arbitrage to attract MNCs.
The proposal also has some degree of support from the IMF. While China is not likely to have a serious objection with the US call, a concern for Beijing would be the impact on Hong Kong, the seventh largest tax haven in the world, according to a study published earlier this year by the advocacy body Tax Justice Network. Plus, Chinas frayed relationship with the US could be a deterrent in negotiations.
Who are the targets?
Apart from low-tax jurisdictions, the proposals are tailored to address the low effective rates of tax shelled out by some of the worlds biggest corporations, including Big Tech majors such as Apple, Alphabet and Facebook, as well as those such as Nike and Starbucks.These companies typically rely on complex webs of subsidiaries to hoover profits out of major markets into low-tax countries such as Ireland, the British Virgin Islands, the Bahamas, or Panama.
The US loses nearly $50 billion a year to tax cheats, according to the Tax Justice Network report, with Germany and France also among the top losers. Indias annual loss due to corporate tax abuse is estimated at over $10 billion.
What are the problems with the plan?
Apart from the challenges of getting all major nations on the same page, since this impinges on the right of the sovereign to decide a nations tax policy, the proposal has other pitfalls. A global minimum rate would essentially take away a tool countries use to push policies that suit them. Also, bringing in laws by next year so that it can take effect from 2023 is is a tough task. The deal has also been criticised for lacking teeth: Groups such as Oxfam said the deal would not put an end to tax havens. Express Explained is now on Telegram. Click here to join our channel (@ieexplained) and stay updated with the latest
Where does India stand?
India, which has had reservations about the deal, ultimately backed it in Paris. Finance Minister Nirmala Sitharaman had last week said India is close to deciding the specifics of the two-pillar proposal and is in the final stages of deciding on the details.
India is likely to try and balance its interests, while asserting that taxation is ultimately a sovereign function. India may have to withdraw its digital tax or equalisation levy if the global tax deal comes through. OECD said the Multilateral Convention (MLC) will require all parties to remove all Digital Services Taxes and other relevant similar measures with respect to all companies, and to commit not to introduce such measures in the future.
To address the challenges posed by the enterprises who conduct their business through digital means and carry out activities in the country remotely, the government has the Equalisation Levy, introduced in 2016. Also, the IT Act has been amended to bring in the concept of Significant Economic Presence for establishing business connection in the case of non-residents in India.
Also, there are apprehensions on the impact of this deal on investment activity. The New York Times reported on October 7: India, China, Estonia and Poland have said the minimum tax could harm their ability to attract investment with special lures like research and development credits and special economic zones that offer tax breaks to investors.
Sitharaman on September 21, 2019 had announced a cut in corporate taxes for domestic companies to 22% and for new domestic manufacturing companies to 15%. The Taxation Laws (Amendment) Act, 2019 amends the Income-Tax Act, 1961 to provide for the concessional tax rate for existing domestic companies subject to certain conditions. Also, existing domestic companies opting for the concessional taxation regime will not be required to pay Minimum Alternate Tax.
This, along with other measures, was estimated to cost the exchequer Rs 1.45 lakh crore annually. The effective tax rate, inclusive of surcharge and cess, for Indian domestic companies is around 25.17%.
While taxation is ultimately a sovereign function, and depends upon the needs and circumstances of the nation, the government is open to participate and engage in the emerging discussions globally around the corporate tax structure. The economic division will look into the pros and cons of the new proposal as and when it comes and the government will take a view thereafter, said a senior government official. The average corporate tax rate stands at around 29% for existing companies that are claiming some benefit or the other.
Another official said New Delhi was proactively engaging with foreign governments with a view to facilitating and enhancing exchange of information under Double Taxation Avoidance Agreements, Tax Information Exchange Agreements and Multilateral Conventions to plug loopholes.
See the original post here:
Explained: Taxing Big Tech where it earns profits - The Indian Express
- Report Sounds Alarm Over Growing Role of Big Tech in US Military-Industrial Complex - Common Dreams - April 18th, 2024 [April 18th, 2024]
- Big Tech's ad transparency tools especially X's are failing at their jobs, report finds - Mashable - April 18th, 2024 [April 18th, 2024]
- Big Tech Taps AI Agents to Drive Revenue Growth - PYMNTS.com - April 18th, 2024 [April 18th, 2024]
- National privacy standard eyed by Congress for data harvested by big tech companies Nebraska Examiner - Nebraska Examiner - April 18th, 2024 [April 18th, 2024]
- Big Tech is on a generative AI hiring spree - Fast Company - April 18th, 2024 [April 18th, 2024]
- Disruptive Innovation in the Era of Big Tech - HBR.org Daily - April 18th, 2024 [April 18th, 2024]
- Betting on US Big Tech? Top Earnings Reports to Watch in the Coming Week - FX Empire - April 18th, 2024 [April 18th, 2024]
- Big Tech Earnings Are Just Around the Corner - Meta Platforms (NASDAQ:META) - Benzinga - April 18th, 2024 [April 18th, 2024]
- WATCH LIVE: Will Cain holds panel to discuss Big Tech and Trump trial - Fox News - April 18th, 2024 [April 18th, 2024]
- Google fires 28 workers in aftermath of protests over big tech deal with Israeli government - The Bakersfield Californian - April 18th, 2024 [April 18th, 2024]
- Big Tech offices are getting smaller and that spells trouble for landlords - Quartz - April 18th, 2024 [April 18th, 2024]
- Asking Big Tech to police AI is like turning to 'oil companies to solve climate change,' AI researcher says - Fortune - April 18th, 2024 [April 18th, 2024]
- Big Tech Comes to Small Town: A Bitcoin Mining Story in Spur - CoinDesk - April 18th, 2024 [April 18th, 2024]
- Big Tech loses its appetite for office space, adding to landlords woes - Inman - April 18th, 2024 [April 18th, 2024]
- Google restructure leads to job cuts - Mobile World Live - April 18th, 2024 [April 18th, 2024]
- FTC's Lina Khan talks big tech monopolies on The Daily Show - The Ticker - April 18th, 2024 [April 18th, 2024]
- Digital public infrastructure will drive the future, not big tech: Amitabh Kant - BusinessLine - April 18th, 2024 [April 18th, 2024]
- Big tech is downsizing work space in another blow to office real estate | Mint - Mint - April 18th, 2024 [April 18th, 2024]
- UK Plans Talks With Big Tech to Limit Online Harm for Teens - Bloomberg - April 18th, 2024 [April 18th, 2024]
- Canada to Start Taxing Tech Giants in 2024 Despite US Complaints - Bloomberg - April 18th, 2024 [April 18th, 2024]
- US quarterly earnings to feature big growth in tech-related companies - Reuters - April 18th, 2024 [April 18th, 2024]
- Our View: Big Tech: Google continues to harm news groups for its own profit - Mankato Free Press - April 18th, 2024 [April 18th, 2024]
- Deepfake victims must punish Big Tech because Congress wont - The Hill - April 18th, 2024 [April 18th, 2024]
- Big tech kneecaps anyone researching it. The online harms bill needs to remove barriers to analysis - Policy Options - April 18th, 2024 [April 18th, 2024]
- Global future will not be driven by big tech but by India's DPI: Amitabh Kant - Moneycontrol - April 18th, 2024 [April 18th, 2024]
- Kids Code bills prompt epic showdown between regulators, activists and big tech firms - Biometric Update - April 18th, 2024 [April 18th, 2024]
- Tech Firms Retreating From Office Market - The Real Deal - April 18th, 2024 [April 18th, 2024]
- UKs antitrust enforcer sounds the alarm over Big Techs grip on GenAI - TechCrunch - April 18th, 2024 [April 18th, 2024]
- Time for government to regulate big tech - ACS - April 18th, 2024 [April 18th, 2024]
- UK Markets Authority Warns of AI Market Capture by Big Tech - BankInfoSecurity.com - April 18th, 2024 [April 18th, 2024]
- 2023 Boosts Big Techs AI monopoly? Google, Microsoft, Nvidia, and others wield money power - HT Tech - January 2nd, 2024 [January 2nd, 2024]
- Alphabet (GOOGL) and Meta Shows Power of Ads Over Subscriptions - Bloomberg - January 2nd, 2024 [January 2nd, 2024]
- Looking Beyond The 'Magnificent 7' Analysts Just Upgraded These Three Large-Cap Stocks - Anheuser-Busch - Benzinga - January 2nd, 2024 [January 2nd, 2024]
- Mapping the Biggest Tech Talent Hubs in the U.S. and Canada - Visual Capitalist - January 2nd, 2024 [January 2nd, 2024]
- Google, Meta, other tech giants slash DEI-related jobs, resource groups in 2023: Report - Fox Business - January 2nd, 2024 [January 2nd, 2024]
- South Koreas proposed tech regulations would be a gift to China - The Hill - January 2nd, 2024 [January 2nd, 2024]
- Outlook 2024: Big changes to expect in personal tech - The Indian Express - January 2nd, 2024 [January 2nd, 2024]
- Big Tech Dumped $17 Billion Into AI Companies in 2023 Despite Frozen Market - The Messenger - January 2nd, 2024 [January 2nd, 2024]
- Why OpenAI signals the start of the post-Christensen startup world - Tech.eu - January 2nd, 2024 [January 2nd, 2024]
- Opinion | Lindsey Graham and Elizabeth Warren: When It Comes to Big Tech, Enough Is Enough - The New York Times - July 29th, 2023 [July 29th, 2023]
- Globe editorial: Canada can't tackle Big Tech on its own - The Globe and Mail - July 29th, 2023 [July 29th, 2023]
- July jobs report and more Big Tech earnings are in the week ahead after markets notch historic run for Dow - CNBC - July 29th, 2023 [July 29th, 2023]
- A Setback in the F.T.C.'s Fight Against Big Tech - The New Yorker - July 29th, 2023 [July 29th, 2023]
- Be strong in the fight against Big Tech, Canada - Canada's National Observer - July 29th, 2023 [July 29th, 2023]
- Decoding volatility: Are big tech stocks as stable as we think? - CryptoSlate - July 29th, 2023 [July 29th, 2023]
- Patients think their health data will be leaked and don't trust big tech ... - Contemporary Pediatrics - July 29th, 2023 [July 29th, 2023]
- The Role of Artificial Intelligence in Big Tech Earnings Season - Fagen wasanni - July 29th, 2023 [July 29th, 2023]
- The problem with Big Tech's voluntary AI safety commitments - Emerging Tech Brew - July 29th, 2023 [July 29th, 2023]
- How the Crypto Market Prepares Ahead of Big Tech Earnings ... - BeInCrypto - July 29th, 2023 [July 29th, 2023]
- Tony Anscombe: It's Misleading to Ask if Big Tech Wants to Read ... - BroadbandBreakfast.com - July 29th, 2023 [July 29th, 2023]
- The Week Ahead: Fed, ECB and BoJ set rates, and Big Tech ... - Financial Times - July 29th, 2023 [July 29th, 2023]
- China's Big Tech making a comeback with Beijing offering fresh ... - The Straits Times - July 29th, 2023 [July 29th, 2023]
- Montgomery County school district sues Big Tech over youth mental ... - Washington Times - June 18th, 2023 [June 18th, 2023]
- Big Tech knows most Brits don't know how to protect their online ... - TechRadar - June 18th, 2023 [June 18th, 2023]
- The time for talk is over is time for action on data privacy - The Hill - June 18th, 2023 [June 18th, 2023]
- Meet the man calling out Big Techs climate hypocrisy - Corporate Knights Magazine - June 18th, 2023 [June 18th, 2023]
- Letter: UK watchdog's tough stance on Big Tech should reassure MPs - Financial Times - June 18th, 2023 [June 18th, 2023]
- Peter Thiel on Big Tech: A Throwback Lecture - Walter Bradley Center for Natural and Artificial Intelligence - June 18th, 2023 [June 18th, 2023]
- Big Tech Is Big Tobacco - The Lever - May 6th, 2023 [May 6th, 2023]
- Graham fires warning shot at Big Tech: Were going to unleash the courtrooms of America on you - Fox News - May 6th, 2023 [May 6th, 2023]
- Experts weigh the current cost of anticompetitive behavior in Big ... - NYU Law - May 6th, 2023 [May 6th, 2023]
- Big Tech lobbying on AI regulation as industry races to harness ... - Center for Responsive Politics - May 6th, 2023 [May 6th, 2023]
- 'Big Tech is knowingly fueling a mental-health crisis in this country ... - Morningstar - May 6th, 2023 [May 6th, 2023]
- EY's Abandoned Split Exposes Obstacles to Big Tech Consulting - Bloomberg Tax - May 6th, 2023 [May 6th, 2023]
- Apple CEO Tim Cook calls mass layoffs a last resort, as the company avoids the giant job cuts of its Big Tech peers - Yahoo Finance - May 6th, 2023 [May 6th, 2023]
- Big Tech stocks are flying! Which ones are the best buys today? - Motley Fool UK - May 6th, 2023 [May 6th, 2023]
- Why Indian start-ups have accused the Internet and Mobile Association of India of spreading Big Tech propaganda - The Indian Express - May 6th, 2023 [May 6th, 2023]
- Intimate Images Protection Update Big Tech Warned To Be Ready ... - BC INJURY LAW - May 6th, 2023 [May 6th, 2023]
- Apple Stock and Big Tech Are Winners. Why Cathie Wood's ARK Is Still a Loser. - Barron's - May 4th, 2023 [May 4th, 2023]
- White House officials will meet Big Tech CEOs as President Biden looks to tackle AI safety concerns - Yahoo Canada Finance - May 4th, 2023 [May 4th, 2023]
- The top 10 buzziest companies Gen Z wants to work fornone of them are in Big Tech, says new report - CNBC - May 4th, 2023 [May 4th, 2023]
- Apple Reports Earnings Today. What to Expect. - Barron's - May 4th, 2023 [May 4th, 2023]
- Big Tech Earnings: Time to Take Another Bite of Apple? - Yahoo Finance - May 4th, 2023 [May 4th, 2023]
- Vibe Check: Big Tech Is Losing Its 'Luster' For The Class Of 2023 Amid Mounting Layoffs And An Uncertain Economy - Forbes - May 4th, 2023 [May 4th, 2023]
- Lindsey Graham says Big Tech will kill online child safety bill, teases plan with Elizabeth Warren - Washington Times - May 4th, 2023 [May 4th, 2023]
- 'Break them open' new EU rules coming for Big Tech - TNW - May 4th, 2023 [May 4th, 2023]
- EY's Abandoned Split Exposes Obstacles to Big Tech Consulting - Bloomberg Law - May 4th, 2023 [May 4th, 2023]
- Open Source Communities Need More Than Funding From Big Tech - DevOps.com - May 4th, 2023 [May 4th, 2023]
- Night School, Class 3: Big Tech vs the insurgents - Financial Times - May 4th, 2023 [May 4th, 2023]
- MM View: The Big Tech monster is coming for you - but only if you let it - Money Marketing - May 4th, 2023 [May 4th, 2023]