Minimum Tax on Big Businesses
- Recently, the members of the European Union reached a preliminary agreement to enact a minimum tax of 15% for large companies.
- A plan to allocate tax rights among jurisdictions and impose a 15% minimum tax rate on huge multinational firms was approved by 136 countries last year.
- The minimal tax rate is predicted to increase yearly worldwide tax receipts by $150 billion.
- According to Pillar 2 of the global tax accord framed by Organization for Economic Cooperation and Development (OECD) it had agreed to establish a minimum tax rate of 15% on Big Businesses.
- The EU has agreed to comply with the provisions mentioned in the Pillar 2 of the global tax accord framed by Organization for Economic Cooperation and Development (OECD).
- This is done to prevent large corporations with international operations from benefiting from setting up residence in tax havens in order to reduce their tax obligations.
- On the other hand, Pillar 1 of the OECD’s tax plan attempts to address the issue of taxing rights.
Challenges due to Competition:
- Over the past few decades, corporate tax rates have decreased globally as a result of governments competing to promote economic growth through more private investments
- The credit goes to former U.S. President Ronald Reagan and former British Prime Minister Margaret Thatcher, global company tax rates have decreased from over 40% in the 1980s to around 25% in 2020.
- The “race to the bottom” that has made it more difficult for governments to get the revenues necessary to sustain their increasing spending budgets is addressed by the OECD’s tax strategy.
- This minimum tax proposal becomes significant given the fact that the fiscal positionof governments across the world is not good.
- The OECD’s tax plan may not be supported by all governments, especially those of traditional tax havens, which could delay its implementation. high taxing places like
- The minimum tax plan is more likely to be completely adopted by the EU because it spares them from having to compete with low-tax states. Low tax jurisdictions, however, are more likely to oppose the OECD’s plan unless they are sufficiently rewarded in other ways.
- It should be emphasized that nations like Poland have already attempted to block the implementation of the global minimum tax idea within the EU, alleging a variety of non-economic factors.
Source The Hindu
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