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.

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Mains Paper 2: International

Prelims level: Global Corporate Tax

Mains level: Effect of policies on India’s interests

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