Global Corporate Tax

• Recently, the heads of the world’s major economies—the Group of 20 (G20) nations has approved a new global minimum corporate tax.

• The deal, announced at the G20 summit in Rome, Italy, is “historic” since this is the first time nearly all nations have agreed to such a system.
Tax Avoidance: A menace
• The new deal was a bitterly fought battle over rampant tax evasion by multinational firms.

• Nations have been competitively adopting low tax regimes to attract investments that gave rise to what we know as “tax havens”.

• Tax Havens are countries/territories where corporate houses are registered in or operate from and around 90 per cent of the world’s top 200 companies have a presence in tax havens.

• According to current tax laws, companies pay taxes not at the place of economic activities, but at the tax havens where they are registered. Eg: A company might do business in India but it would not pay tax on profits made here since it is registered elsewhere.

• The International Monetary Fund estimates that the global revenue loss to governments due to this tax avoidance was between $200 billion and $600 billion in 2019.

• Corporations avoided tax massively by shifting $1.38 trillion worth of profit from the countries where they were generated to tax havens.

• Private tax evaders paid less tax than they should have by storing a total of over $10 trillion in financial assets offshore.

• According to the Tax Justice Network, this revenue loss would be around $500 billion, with lower-income countries losing around $200 billion. Eg: In 2019, there were 650 million poor people in the world living under the international poverty line of $1.9 per day.

• According to the Corporate Tax Haven Index 2021, prepared by the Tax Justice Network, the OECD countries that set the global tax rules were responsible for over two-thirds of global corporate abuse.


Mains Paper 2: International

Prelims level: Global Corporate Tax

Mains level: Effect of policies on India’s interests

Subscribe to Get Weekly updates

Get daily current affair video, detailed current affairs PPT for quick revision and Free One Liner PDF directly in your inbox. Subscribe now to get this month's one liner for FREE.