Global Minimum Tax – The Antidote for Race to The Bottom

Sunil Arora & Ameet Baid – [2021] 131 taxmann.com 182 (Article)

The G20/OECD in the recent years have made efforts to discourage MNCs and technology giants from shifting profits and tax revenues to low or no tax jurisdictions regardless of where the sales are made, or physical presence is based. Multinationals with income from intangibles such as royalties from trademark, patent, and software licenses have located or relocated such rights in lower tax jurisdictions to avoid paying higher taxes imposed by their home countries and by the countries where their income is earned.

With a view to preventing base tax erosion, the world leaders have moved to broadly agree on a Global Minimum Tax (GMT) in 2021, based on the “Pillar Two” proposal from the G20/OECD1 Inclusive Framework on BEPS. The objective has been to curtail the fostering of 30-year old tax competition of ‘Racing to the Bottom’ (an expression by the US Treasury Secretary) for attracting investments, by flooring the effective tax rates applied to cross-border investment by large MNCs.

In achieving the aforesaid objectives, most countries (including India) have been pushing for an overhaul of cross-border taxation of MNCs and have expressed harmony for a GMT at 15%. Out of 140 member countries in G20/OECD Inclusive Framework on BEPS, 136 countries have joined and agreed to the landmark deal on GMT to keep MNCs away from dodging taxes. While an agreement on GMT has been reached, time-to time consultations between G20/OECD member jurisdictions will be undertaken to settle the key technical aspects, rules, and specific element.

Click Here To Read The Full Article