EU Adopts 15% Global Minimum Tax on Big Business

EU Adopts 15% Global Minimum Tax on Big Business

European Union has recently approves 15% Global Minimum Tax under Inclusive Framework on Base Erosion and Profit Sharing (BEPS) of Organisation for Economic Cooperation and Development (OECD) and G20. Under this, two pillar solution framework has been adopted to address tax challenges arising from the digitalisation of economy.

The Global Minimum Tax is a minimum tax rate that would apply to the profits of multinational corporations. The idea behind a Global Minimum Tax (GMT) is to ensure that big companies pay a minimum level of tax, regardless of where they are based, or where they do business. This would prevent companies from shift their profits to low tax countries in order to reduce their tax liabilities.

This framework is joined by 142 nations including India to reform international taxation tules and stop governments racing to cut taxes in a bid to attract companies.

• Pillar One applied to most profitable multinational corporates with revenue exceeding €20 billions and profitability above 10% and it reallocates part of their profit to countries where they sell products or provide services.
• Pillar Two applied to large multinationals with revenue of atleast €750 million pay an international minimum effective tax rate of 15% in all countries in which they operate from 2023.

• Stop Financial diversion to tax heaven nations by stopping of outflow of tax revenue from origin countries.
• As per OECD estimates, it will generate $150 billion additional global tax revenue annually.
• Act as a progressive step towards global tax reforms.
• It will help to boost global economy by providing a level play field to all businesses.
• Tax heaven countries would no longer exist since taxes avoided in haven would be collected at home.

It refers to strategies used be multinational corporations to minimise their tax liabilities by shifting profit to low tax jurisdictions and exploiting the gaps in the tax rules to avoid paying tax.