India to push G­20 to raise taxes on MNCs making ‘excess profit’ 

India to push G­20 to raise taxes on MNCs making ‘excess profit’ 

Subject :Economy

Section:

Context: India will push its Group of 20 partners at a meeting it is hosting to support its proposal to raise the share of taxes multinational companies pay to countries where they earn “excess profits”

Key Points:

• OECD countries led by the US agreed to implement a minimum tax of 15% on big businesses under the Pillar 2 of OECD Global Anti-Base Erosion Model Rules (GloBE). 136 nations have agreed to the model rules.
• OECD was hoping to secure signatures to the Pillar-2 of the GloBE Rules during the G20 summit. But India is reiterating its demand of commensurate share of profits for countries where the MNCs earn their profits.
• India’s proposal is being seen as likely to hinder chances of adoption of the OECD proposal during the G20 summit by OECD countries like Japan and Australia.
• Several countries have concerns over the allocation of taxing rights among countries.

OECD Proposal:

• Under the agreement, global corporations with annual revenues over 20 billion euros ($22 billion) are considered to be making excess profits if the profits exceed 10% annual growth. The 25% surcharge on these excess profits is to be divided among countries.
• More than 140 countries were supposed to start implementing next year a 2021 deal overhauling decades-old rules on how governments tax multinationals. The present rules are widely considered outdated as digital giants like Apple or Amazon can book profits in low-tax countries.
• The proposed solution consists of two components- Pillar One which is about reallocation of additional share of profit to the market jurisdictions and Pillar Two consisting of minimum tax and subject to tax rules.

India’s view 

•  India is fighting for a higher share of taxes for markets where firms do business as it is set to be the world’s most populous country and set to become one of the biggest consumer markets.
• India wants the agreement to ensure greater share of profits for the markets giving due consideration to the demand side factors in profit allocation.
• India wants taxation to be de-linked from the excess profit tax principle. The rules now say countries offset their share of taxes with the withholding tax they collect.
• Withholding tax is collected by companies while making payments to vendors and employees, and remitted to tax authorities.
• India wants the two pillars of GloBE to be adopted as a package deal.