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G7 leaders support 15% global minimum corporate tax; experts discuss its impact on developing countries

Updated : June 16, 2021 19:19:19 IST

On June 5, the G7 finance ministers agreed in principle upon a global tax reform that is being hailed as a 'historic' deal.

The agreement covers two pillars - the first requiring MNCs to pay taxes in countries where they operate and not just where they have their headquarters and the second pillar commits to a global minimum corporate tax of at least 15 percent on a country by country basis.

This proposal will be put forth for discussion in the G20 meeting in July, and as we the finer details of the agreement still awaits, a broad assessment suggests that it could boost revenue collection significantly across major economies including in India.

A global debate on such a reform has been on for quite some time now. However, the pandemic has now accelerated the pace and the need to reach a broader agreement on the issue.

Countries across the world have embarked on an unprecedented spending spree to support their economies hit hard by COVID-19 induced restrictions. As a result, sovereign debt levels have surged, and fiscal deficits are expected to remain elevated in the near term, which is pushing countries to look at ways to bolster their fiscal capabilities and re-haul the global tax system.

So, will the move towards a global minimum tax lead to a relocation of investments out of low tax jurisdictions? Will it prompt policy makers to review tax incentives?

Will it ensure a more level playing field where non-tax factors play a greater role in investment decisions? Moreover, will it lead to a significant increase in global income tax, which could aid economic recovery in a post COVID world? To discuss this, Shereen Bhan spoke to Renu Narvekar, Global Head of Taxation at TCS; Matthew Mealey, International Tax & Transactions Services at EY and Sudhir Kapadia, Partner & National Tax Leader at EY India.

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