Introduction: –

The concept of Minimum worldwide company Tax has emerged and gained support in recent years, causing a seismic shift in the worldwide landscape of company taxation. This innovative initiative attempts to tackle the problems caused by profit shifting, tax evasion, and nations competing with one another to recruit multinational corporations (MNCs). The global minimum tax rate, or minimum global corporation tax, is a policy effort that aims to set a global floor on company tax rates. The goal is to stop multinational corporations (MNCs) from taking advantage of loopholes and inconsistencies in the tax laws of various nations in order to reduce their total tax obligation. The goal of the effort is to guarantee that businesses, irrespective of the jurisdiction in which they conduct business, pay a minimum amount of tax. The concept gained momentum with the endorsement of major economies and international organizations. The key features of Minimum Global Corporate Tax along with challenges are discussed in this article.

 Key Features: –

1. Common Minimum Tax rate: –

Countries participating in this initiative agree to set a common minimum tax rate. This rate serves as a baseline, and countries commit to imposing taxes on corporate profits at or above this threshold.

 2. Applicability: –

The minimum tax is typically applied to the income of large and highly profitable multinational corporations. The focus is on preventing the erosion of the global corporate tax base by ensuring that these entities pay a fair share of taxes in the countries where they generate profits.

3. Framework: –

The initiative operates on an inclusive framework, encouraging widespread international participation. Hundreds of countries have engaged in discussions to establish a consensus on the minimum tax rate, reflecting the collaborative nature of this global effort.

Implication on International Taxation: –

1. Reducing Tax Competition: –

One of the primary goals of Minimum Global Corporate Tax is to mitigate the harmful effects of tax competition among countries. By establishing a common minimum rate, nations are less likely to engage in a race to the bottom, where they lower their corporate tax rates to attract multinational investment.

2. Profit Shifting: –

MNCs often engage in profit shifting strategies to shift their profits to low-tax jurisdictions. The minimum global tax aims to curb such practices, ensuring that corporations pay taxes based on where economic activities generating profits are conducted.

Challenges in Implication: –

1. Implementing a global minimum tax requires coordination and agreement among a large number of countries, each with its own economic interests and tax policies. Achieving consensus on the minimum tax rate and its application poses a significant challenge.

2. Some critics argue that the minimum global tax may disproportionately affect smaller economies, limiting their ability to attract foreign investment through competitive tax policies.

Conclusion: –

One important step in the direction of establishing a just and stable international tax system is the Minimum Global Corporate Tax. Although there remain obstacles in the way of its execution, the plan shows a growing understanding of the need to combat tax evasion and make sure that multinational firms give back fairly to the nations in which they conduct business. More innovations are probably in store as nations strive to create a global tax system that is both sustainable and equitable in the years to come.

 (This article represents the views of the authors only and does not intent to give any kind of legal opinion on any matter)

 Authors: Kushal Mehta | Senior Consultant | +919930612247 | 

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February 2024