India and the GMCTR or, the Global Minimum Corporate Tax Rate

India and the GMCTR or, the Global Minimum Corporate Tax Rate

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Within the 47th G7 summit, the finance ministers of the Group of Seven (G7) nations, which represent seven of the world's largest economies, came to the historic agreement to establish a GMCTR or, the Global Minimum Corporate Tax Rate that would close cross-border tax loopholes utilised by some multinational corporations. The G7 nations have approved a minimum global corporate tax rate of 15%, and policies have been put out to ensure that taxes are paid in the nations where corporations operate. Regardless of where their sales are generated, major economies want to deter multinational corporations from transferring earnings – and tax collections – to low-tax nations.

As a result of the GMCTR or, the Global Minimum Corporate Tax Rate, businesses are able to avoid paying greater taxes in their traditional home nations by shifting an increasing amount of their intangible income to low-tax jurisdictions, such as royalties on intellectual property, software, and pharmaceuticals patents. Such tax-based erosions can be addressed without harming the enterprises' bottom lines if a global minimum is established. The G20 nations and the Organization for Economic Cooperation and Development will also be responsible for making important decisions about the global minimum tax (OECD). For years, the OECD has been the primary international organisation in charge of coordinating tax negotiations among 140 nations about guidelines for taxing cross-border digital services and preventing tax base erosion.

The GMCTR or, the Global Minimum Corporate Tax Rate will be put into effect and be applied to business profits made abroad. This suggests that governments can still choose their local business tax rate even if a worldwide minimum is implemented. The benefit of moving profits to a tax haven is lost if a corporation pays lower taxes in one nation than in another since the home governments can "top-up" their taxes to the stipulated minimum rate. Global corporate taxes will become uniform if there is a set worldwide minimum corporate tax rate. Corporate giants typically seek out nations where they can establish their businesses where corporate taxes are very low and exemptions are plentiful, which has led to a limited amount of global expansion.

The GMCTR or, the Global Minimum Corporate Tax Rate will likely be advantageous for India because the government has been willing to artificially lower the corporation tax rate in order to attract foreign direct investment (FDI). As of June 2021, the corporation tax rate for new manufacturing businesses is 15%, while the rate is 25.17% for businesses that do not seek to claim any exemptions or incentives.