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In a declaration of war on low-tax jurisdictions around the globe, US Treasury Secretary has urged G20 nations to move towards a global minimum corporate tax.


GS-II: International Relations (International Groupings, Foreign policies affecting India’s Interests) GS-III: Indian Economy (Taxation, External

Dimensions of the Article:

  1. About the Global Minimum Corporate Tax Rate proposal
  2. The necessity of the Global Minimum Corporate Tax according to U.S.
  3. How did other countries react to the proposal?

About the Global Minimum Corporate Tax Rate proposal

  • The US proposal envisages a 21% minimum corporate tax rate, coupled with cancelling exemptions on income from countries that do not legislate a minimum tax to discourage the shifting of multinational operations and profits overseas.
  • The US views a Global Minimum Corporate Tax Rate as an attempt to reverse a “30-year race to the bottom” in which countries have resorted to slashing corporate tax rates to attract multinational corporations (MNCs).
  • The proposal for a minimum corporate tax is tailored to address the low effective rates of tax shelled out by some of the world’s biggest corporations, including digital giants such as Apple, Alphabet and Facebook, as well as major corporations 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 or Caribbean nations such as the British Virgin Islands or the Bahamas, or to central American nations such as Panama.

The necessity of the Global Minimum Corporate Tax according to U.S.

  • The proposal aims to somewhat offset any disadvantages that might arise from the proposed increase in the US corporate tax rate.
  • The proposed increase to 28% from 21% would partially reverse the previous cut in tax rates on companies from 35% to 21% by way of a 2017 tax legislation.
  • The increase in corporation tax comes at a time when the pandemic is costing governments across the world, and is also timed with the US’s push for a USD 2.3 trillion infrastructure upgrade proposal.
  • A global compact on this issue, at the time of pandemic, will work well for the US government and 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 plan to peg a minimum tax on overseas corporate income seeks to potentially make it difficult for corporations to shift earnings offshore.
  • However, a global minimum rate would essentially take away a tool that countries use to push policies that suit them. A lower tax rate is a tool they can use to alternatively push economic activity.
Global corporate income tax, Global tax, Biden tax proposal, Global tax, Indian Express

How did other countries react to the proposal?

  • The European Commission backed the proposal, but the global minimum rate should be decided after discussions in the Organisation for Economic Cooperation and Development (OECD).
  • China is not likely to have a serious objection with the US call, but an area of concern for Beijing would be the impact of such a tax stipulation on Hong Kong, the seventh-largest tax haven in the world and the largest in Asia.
  • The US proposal also has support from the International Monetary Fund (IMF).

-Source: Indian Express

December 2023