October 18, 2021

The World Stock Markets Tips & Targets, News, Views & Updates

The World Stock Markets Tips & Targets, News, Views & Updates

Globalisation of corporate taxation

India and other countries where global multinational enterprises (MNEs) operate, as well as countries like the US, from where companies relocate their headquarters to tax havens for the purpose of minimising tax payments, stand to gain from the radical overhaul of the global corporate tax system that has won support from 136 countries, and will now be presented to G20 leaders. Championed by the Organisation for Economic Cooperation and Development (OECD) to end base erosion and profit shifting (BEPS), the drive is expected to see national laws and global conventions crystallise in 2022 and come into force in 2023.

The agreement has two components, called Pillars. Pillar 1 gives countries the right to tax a portion of the profits of MNEs that have a threshold level of profit margin (profits/sales), 10%, and of global sales, ₹20 billion. A quarter of the profits above the threshold margin of 10% would be assigned to the countries where these MNEs make sales, regardless of whether they have a permanent establishment in those jurisdictions. In return, countries would have to abandon measures such as India’s Equalisation Levy and France’s Digital Tax, rough and ready attempts to tax such winners of globalisation. Around $125 billion of profits would be available for taxation, countrywise allocation still being worked out. Under Pillar 2, all countries will have a minimum corporate tax of 15%, to be levied on companies with a minimum turnover of ₹750 million, and collect around $150 billion in new revenues annually. Rightly, there has been some give and take.

A stipulation that the minimum rate of 15% will not be increased at a later date, and another that small businesses will not be hit with the new rates helped Ireland join the pact. If Ireland, which has a headline corporate tax rate of 12.5%, maintains status quo on the rate, the US can now impose a top-up tax on the parent entity headquartered there. Four countries – Kenya, Nigeria, Pakistan and Sri Lanka – have not come on board – at least, as yet. An end to digital tax should persuade Republicans to support the pact in Congress in the US.

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