Worlds richest nations group G7 (Group of 7) have agreed that MNCs operating anywhere across the globe will be obliged to pay a minimum tax rate of at least 15%. This would be a change in global tax system that has existed so far. This would close loopholes using which MNCs could shift the profits and tax revenues to low taxing jurisdiction.
MNCs always prefer countries that charges the lowest of lowest tax to set their firm and it has always been that governments attract foreign investments to their country by lowering the tax rate they have to pay. According to U.K based Tax Justice Network, India suffers annual loss of $10.3bn from global tax abuse.
Global Minimum Tax Rate
It is the tax rate that will apply for profit made overseas, the local government of country in which the business is operating in can fix whatever corporate tax rate they want but the minimum tax rate will be met by the company by paying extra tax in their home country. Minimum Tax rate will be fixed for every MNCs, so that shifting of profits and tax revenues to low tax countries and escaping higher tax payments in home country will be blocked.
The minimum tax rate proposal was agreed but the rate of tax have not been fixed yet. The pandemic has hit the world worse and countries are trying to revive their hard hit Economy. The world economy is estimated to have shrunk by 3.5% in 2020 which has made most of the countries to use wealth from coffers to Support the economy. The G7 has also agreed on allocating equitable tax rights, with market countries awarding taxing rights on at least 20% of profit exceeding a 10% margin for the largest and the most profitable entities.
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