The worldwide minimum 15% corporate tax rate accord signed by the world’s richest nations is expected to favour India since the actual domestic tax rate is higher than the threshold, and the country would continue to attract investment, tax experts said.
The Finance Ministers of the G7 countries, which include the United States, the United Kingdom, Germany, France, Canada, Italy, and Japan, achieved a significant agreement on taxing multinational corporations on Saturday, establishing a minimum worldwide tax rate of at least 15%.
In a move to resolve loopholes in cross-border taxation, they also agreed to put in place procedures to ensure that firms pay taxes in the countries where they operate.
In September 2019, India reduced corporation taxation for domestic enterprises to 22% and for new domestic manufacturing units to 15%. Subject to specific circumstances, the concessional taxation rate was extended to existing domestic enterprises as well.
Sudhir Kapadia, EY India National Tax Leader, said the global corporate taxation deal is a game changer, especially for large and developing nations like India, which has long struggled to maintain corporate taxation rates artificially low in order to attract much-needed foreign direct investment.
The OECD Secretary-General, Mathias Cormann, stated in a statement that the G7 Finance Ministers’ agreement, including on a minimum level of global taxes, is a significant step toward the global consensus required to modernise the international tax system.
According to Deloitte India Partner Rohinton Sidhwa, the advantage of the minimal tax rate should be realised by first granting the ability to tax a portion of the profits of significant global digital MNEs. It would also put a stop to the many digital taxes that have grown throughout the world, akin to the equalisation levy in India, he said, adding that it will open the door for revisions in global tax treaties as a result of the agreement.
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