Impact of Global Minimum Tax Regime
The Global Minimum Tax Regime is a proposed framework that aims to ensure that multinational corporations pay fair taxes in the countries where they operate. It is designed to address the problem of companies shifting profits to low-tax jurisdictions, which can result in less revenue for governments and an uneven playing field for domestic businesses.
In October 2021, 137 of the 141 Organization for Economic Cooperation and Development (OECD)/G20 member nations agreed to implement a minimum 15% corporate tax rate for multinational entities (global turnover over Euro 750 million) as a component of the two-pillar strategic approach of the OECS’s ground-breaking taxing the digital economy framework. 137 nations, including India, have agreed to a worldwide agreement to ensure giant MNEs pay the OECD’s 15% Global Minimum Tax (GMT).
Since 2017, the G20/OECD inclusive Base Erosion and Profit Shifting (BEPS) framework has been collaborating to develop a Two-Pillar Solution to solve the tax concerns resulting from digitization. The participating governments are now talking about implementation strategies. In this article further, we have discussed why there should be a global minimum tax, the proposed tax structure, and the tax policy implications of the global minimum tax.
Businesses and governments would both feel the effects of a global minimum tax policy. On the business side, companies would no longer be able to use tax havens to reduce their tax liability, which could result in higher overall taxes for some companies. However, it would also create a level playing field for companies currently at a disadvantage due to the tax practices of their competitors.
For governments, a global minimum tax regime would mean a more stable and predictable revenue stream, which could be used to fund important public services and infrastructure projects. It would also make it more difficult for companies to avoid taxes, and it would contribute to lowering income inequality and raising public welfare in general.