India appears to be in conflict with the United States of America over the recent decision by the Group of Seven (G7) countries to support a proposal to create a common global corporate tax structure for multinational corporations, according to a report by India Money control.
What does this proposed corporate tax structure look like?
On May 5, the G7 nations, which include the US, Japan, Germany, UK, France, Italy and Canada, tabled a proposal for a global corporate tax rate that states that countries should reduce the foreign profits of their domestic companies with at least 15 Percent should tax. This was apparently designed to close cross-border tax loopholes used by the world’s largest corporations, a report from said Reuters.
The report says that this agreement will form the basis for a global pact next month. That proposal also aimed to end a decades-long race in which countries battled to attract corporate giants with low tax rates and exemptions, the report added. The 47th G7 Summit will take place June 11-13 in Cornwall, UK.
Who are the intended aims of this proposal?
According to Indian express, digital giants like Apple, Alphabet and Facebook shell out low effective tax rates. The report says these companies rely on subsidiaries to capitalize on key markets in low-tax countries like Ireland or Caribbean countries like the British Virgin Islands or the Bahamas. India’s annual tax loss due to such corporate tax practices is around $ 10 million. The US is losing nearly $ 50 billion as a result, the report added.
UK Treasury Ministers are already planning to pull in Amazon’s lucrative cloud computing business to ensure Amazon pays more corporate tax under this new G7 proposal, a report from Financial Times said.
Where does India stand?
A controversial provision of this G7 proposal with regard to sovereignty rights is that countries would have to repeal their respective digital services tax when the global corporate income tax comes into force. A global minimum interest rate would deprive a country of the right to pursue a policy that suits itself.
For example, India charges all overseas companies up to 2 percent of their revenue through digital companies based in or targeting the Indian market. This covers most of the American internet majors.
This particular digital tax of India (and other countries such as Italy, Spain, Turkey and the UK that levy similar taxes) has been scrutinized by United States sales representatives as they have classified these policies as “discriminating against US digital companies”. They decided to impose retaliatory tariffs on certain goods from countries like India, but suspended the tariffs “Up to 180 days to have additional time to complete the ongoing multilateral negotiations” on international taxation at the OECD and in the G20 process ”
An anonymous Indian government official was quoted by MoneyControl as saying, “The (G7) proposal is essentially unacceptable as India will not support a system whereby international rules dictate the right of sovereign nations to set corporate tax rates. “he said. The Indian government is reportedly due to officially comment on the matter later.
However, the report states that India could consider the proposal as the G7 proposal also promises to give countries where MNCs operate “tax rights on at least 20 percent of profits that exceed a 10 percent margin, for the largest and most profitable multinationals ”.
What is India’s Digital Tax or Google Tax?
The countervailing levy or popularly known as the Google tax, which first came into effect in 2016, was aimed at offshore firms hosting advertisements for Indian consumers. In 2020, the Finance Act will expand the scope of this tax and extend it to deliveries or services in electronic commerce.
This tax works together with the goods and services tax (GST) for cross-border transactions. It covers a range of digital transactions, including business-to-business (B2B) transactions, business-to-consumer (B2C) transactions, e-commerce marketplaces, and digital services.