The push at G7 over a minimum 15 percent corporate tax is among the boldest financial moves for some time. The G7 agreement takes forward a proposal that the OECD has been lobbying for over a period now.
The move at the G7 summit at Corbis Bay in Cornwall in Britain is aiming ambitiously for implementation of the proposal floated by the OECD (Organisation for Economic Cooperation and Development, a group of 38 strong economies). But it still has a long way to go before it can gain consensus outside of the G7 (the US, Canada, Japan, Britain, France, Germany and Italy).
India is a guest country in attendance at the G7 this weekend, though Prime Minister Modi will attend through video conferencing. Australia, South Korea and South Africa are the other guest countries at the G7. The corporate tax issue, like others, are due to be taken forward more widely soon enough at the G20 next month, of which India is a full member.
The corporate tax agreement at G7 masks a great many devils that lie waiting in the detail that has yet to emerge. Broadly speaking, “it’s a mixture of trying to get more tax out of the multinationals with super profit levels and redistribution to some degree to the countries where they make sales rather than where they traditionally pay their tax,” John Cullinane, Director of Public Policy at the Chartered Institute of Taxation tells CNBC-TV18.
India has a lot here to bargain for—and to bargain against. Some of the richer countries are pushing for taxes from sales coming their way rather than go into low tax jurisdictions. The G7 nations are looking to pocket profits in taxation that arise from sales rather than let them slip into a country such as Ireland that offers a low 12.5 percent corporate taxation.
India may have to push for something a little different from these negotiations over numbers. And that could mean going back to an earlier proposal to link taxation with employee numbers and not just sales.
This is something India would very likely want to negotiate for, says Cullinane. “Something that places less weight on sales and more weight on employee numbers might be more a measure of where the company really is and the value of what it is doing might be more advantageous.”
India will want to take this proposal further from where it stands at the moment. “I find it hard to think India would lose as compared to before but there is an opportunity for more, and maybe the Indian government is negotiating a slightly better result from the India perspective,” says Cullinane. “More focus on where the employees work would you think would be the sort of factor that would give India an advantage.”
Short of that the agreement could still bring some benefit to India, even if it is particularly suited to the bigger economies as it stands. “Concentrating on sales suits us very well but it’s not true that this is of no benefit to India,” says Cullinane. “The US multinationals operate in India too. They will be advertising revenues on some of these platforms that are focused on the Indian market. These revenues may allow India some way into those profits that has not been available before.”
India could far more to gain there if an agreement could at the least factor in employee numbers significantly. India will clearly not wish to produce cheap for companies to take profits back to their countries—or to tax havens.
A wider agreement will not be easy to reach, and will certainly be less easy to implement. “At the end of the day individual countries have to make national laws that implement these taxes,” says Cullinane. “And they will have to do so that no one will be able to accuse them of discriminatory legislation because they are acting in accordance with internationally agreed norms.”
Already some countries are speaking of exceptions, most notably Britain that is proposing an exception for financial services. Every country will want to factor in its own interests, and these may not be common across many of them, and could likely be in conflict. “If everyone has got their own exceptions, then it’s not going to work,” says Cullinane. “With a call for exemptions there’s a risk of unravelling the whole thing, and it suggests that negotiations aren’t still finished, even though victory has been proclaimed.”
— London Eye is a weekly column by CNBC-TV18’s Sanjay Suri, which gives a peek at business-as-unusual from London and around.
Read his other columns here
(Edited by : Ajay Vaishnav)