India to Urge G20 to Raise Taxes on Excessively Profitable Companies

Over 140 countries were scheduled to commence the implementation of a 2021 agreement next year, which aimed to revamp long-standing regulations regarding how multinational corporations are taxed by governments.

Proposed by the United States, the agreement would enforce a minimum tax rate of 15% on major global corporations, with an additional 25% tax on profits considered to be “excessive” according to the Organisation for Economic Cooperation and Development (OECD).

Government officials have stated that India will urge its Group of 20 counterparts, during a meeting it is hosting, to endorse its proposition of increasing the tax contribution of multinational companies to the countries in which they generate “excess profits.”

The proposal from India, which has not been previously disclosed, may moderate the optimism of G20 members like Australia and Japan, who anticipated progress on a long-awaited revamp of global corporate taxation during the gathering of finance ministers and central bankers in Gujarat.

In the upcoming year, over 140 countries were scheduled to commence the implementation of a 2021 agreement aimed at modernizing longstanding regulations concerning the taxation of multinational corporations.

The current regulations are widely viewed as obsolete, particularly in light of digital behemoths like Apple or Amazon exploiting low-tax jurisdictions to generate profits.

Propelled by the United States, the agreement proposes a minimum tax rate of 15% to be imposed on major global companies, alongside an additional 25% tax on profits categorized as “excessive” based on the definition provided by the Organisation for Economic Cooperation and Development (OECD).

However, there are reservations from various countries regarding the multilateral treaty that forms a significant part of the plan, leading some analysts to warn of a potential collapse of the proposed overhaul.

According to an official, “India has put forward recommendations to ensure its fair share of taxing authority over the excess profits earned by multinational corporations.”

These suggestions have been submitted to the OECD and are expected to be extensively deliberated during the G20 meeting scheduled for Monday and Tuesday, as per the official’s statement.

Three officials, who preferred to remain anonymous due to ongoing discussions with the OECD and the G20 meeting yet to commence, revealed that India is seeking substantial increments in taxes paid by multinational corporations in the countries where they conduct business. However, the officials did not provide specific details regarding the extent of India’s proposed increase.

Requests for comments from India’s finance and external affairs ministries, as well as the OECD, went unanswered.

According to the agreement, global corporations generating annual revenues exceeding 20 billion euros ($22 billion) are considered to be earning excess profits if their profits surpass a 10% annual growth threshold. The 25% surcharge on these excess profits is intended to be divided among participating countries.

India, advocating for a larger portion of taxes from markets where companies operate, stands as the world’s most populous country and is poised to become one of the largest consumer markets.

As per a survey by the People’s Research on India’s Consumer Economy, the average income of Indian individuals is projected to grow more than thirteen-fold to $27,000 by the end of 2047.

As the host nation of the G20 summit, India will propose the delinking of withholding taxation from the principle of excess profit tax. Currently, the rules stipulate that countries offset their tax share with the withholding tax they collect.

Withholding tax is collected by companies when making payments to vendors and employees, which is then remitted to tax authorities.

In a document released on Wednesday, the OECD acknowledged that a few jurisdictions have expressed concerns regarding the allocation of taxing rights among countries.

The organization stated that efforts are underway to address these issues and expedite the preparation of the Multilateral Convention for signature.

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