G7 tax consensus paves the way for broader discussions on taxing digital services
The agreement reached on Saturday by the group of seven advanced economies, the G7, to tax “the largest and most profitable” multinational companies, paved the way for negotiations between India and other G-20 countries next month on the terms of such an agreement.
The agreement offers taxing rights to countries that are markets for companies in the offshore digital economy, even those where those companies are not physically present. “We are committed to reaching a fair solution on the allocation of taxing rights, with market countries being granted taxing rights on at least 20% of profits exceeding a 10% margin for multinational companies. largest and most profitable, “said a statement from the G7, made up of Canada, France, Germany, Italy, Japan, UK and US, plus the EU .
The G-20 countries are expected to discuss a global fiscal framework for the digital economy in July in order to reach a consensus. An Indian government official said, on condition of anonymity, that a consensus was expected by mid-2021. This is important given that India and many other countries have already imposed taxes on providers of offshore digital economy services, which has angered the United States.
Washington last week gave six countries, including India, 180 days to complete multilateral negotiations on a new tax framework. These countries are on a list of US targets for retaliatory tariffs.
India introduced a 6% equalization tax in 2016 on advertising services provided by offshore digital companies to Indian companies. Last year, it expanded that figure to cover other e-commerce supplies by non-resident businesses, but at a 2% lower rate. It covers all kinds of digital e-commerce transactions in India and transactions that use Indian data.
Significantly, the G7 proposal aims to cover only tech giants such as Google and Amazon, while India may wish to have a broader tax net on non-resident digital businesses.
According to India, any offshore company in the odd-job economy will be subject to tax if the annual payments made to it are greater than â¹2 crore and if it has a consumer base of 300,000 in India. Both the tax base and the amount of tax to be collected should be subject to negotiation. An email to the Ministry of Finance went unanswered.
The G-7 group also proposed an overall minimum corporate tax of 15% aimed at controlling the low corporate tax rate in countries that multinationals operate to artificially reduce taxes paid in countries where they sell their products. and services. However, the rate has been criticized as being less than adequate as some countries apply lower rates. Ireland, for example, charges 12.5%.
Economist Jayati Ghosh, who is part of a campaign committee against corporate tax evasion, said on Saturday the deal fell well short of expectations raised by the Biden administration. âThe G7 has to go beyond minor adjustments if it is to truly meet the challenges,â Ghosh said.
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