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Global Minimum Tax

The recent plan for asserting a Global Minimum Tax (GMT) of 15% on corporations, caught the public eye post the 2021 Cornwall G7 summit. Several OECD countries have also voiced their opinion in favour of such a mechanism to keep the growth of shell companies and tax havens around the world in check. India is also estimated to benefit hugely from the implication of a global minimum tax. It is particularly interesting because of its magnitude and the zeal with which several countries, developing and developed alike, seem to be working on this. Global Minimum Tax undoubtedly is multi-layered and one needs to look at it more closely in order to understand its working and potential.

For this very purpose, in this interview with Dr. Mansi Kedia and Mr. Meyyappan Nagappan, we look at the Global Minimum Tax from the perspective of an economist and a tax lawyer respectively. Through this, we try to assess and unpack the new tax in terms of its working and profound impact on developing economies, especially India, and Multinational Companies in general.

Dr. Kedia is a Fellow at the Indian Council for Research on International Economic Relations. With over 9 years of experience in economic policy, her research areas include telecommunication policy, trade, and industrial policy. She has published papers and reports on telecom and Internet regulations, the impact of information technology, and Industrial policy in India. She was appointed as a member of the Task Force rewriting the Direct Tax Code for India (2017). She also has a background in management consulting and financial services with close to four years of experience in the private sector. She received her B.Sc. in Economics from St. Xavier’s, Kolkata and an MBA from the Indian School of Business, Hyderabad. Her PhD is from the Indian Institute of Foreign Trade, New Delhi.

Mr. Meyyappan is a Leader in the International Tax practice at Nishith Desai Associates (NDA) . He leads the tech and tax practice, impact investment, social finance, tax policy, and GST practices at NDA. He regularly advises several top technology companies on tax and structuring issues, from an international tax and GST perspective including on upcoming technologies and digital products such as block-chain, crypto and gaming. Additionally, he advises on litigation strategy and appears in select matters. He regularly speaks at the International Bar Association conferences and other tax conferences both in India and abroad. He has authored a paper on ‘Impact Investments Simplified’ that has been nominated for the TrustLaw Impact Award, 2020 which recognizes projects that demonstrate significant impact for an NGO or social enterprise, their community, and beyond.

The conversation began with analysing the motivation and timeline of this minimum corporate tax. Mr. Meyyappan said that this has been in the works for a few years now and traced its roots back to the 2008 Financial Crisis and OECD’s 2014 BEPTS Project wherein countries got together to solve the problems created by companies who shift their revenue locations from high to low tax administrations. He also highlighted that the new plan was developed with several public consultations, both on track 1 and track 2 levels. Additionally, involvement of the US also brought weight to the plan, making the discussions around the Global Minimum Tax active in G7, G20 and OECD circles. Dr. Mansi added to the discussion by highlighting how the EU had also attempted to introduce something similar to this back in the 1990s but was unable to do so due to large scale disagreements between countries. However, significant developments over the years and maturity of market structures have brought this discussion back to the fore and in a more feasible manner. She also highlighted the importance of Article 12B of the UN in this regard. 

Following this, we discussed the possible reasons behind the zeal with which OECD countries seem to be pushing towards the implication of the Global Minimum Tax along with the possible contentions with the plan. In this context, Mr. Meyyappan observed that some countries, especially those that are geographically smaller, do appear to be objecting to the plan since they want flexibility on the tax rate they levy. This is because they fear not having any resources to attract Multinational Corporations (MNCs) into their markets without being able to offer lower tax rates than other bigger and more developed economies. Dr. Mansi focused on the excitement of a majority of the OECD countries by explaining how this tax would allow  them to gain control of money inflows and curb tax rerouting and treaty shopping by MNCs in their economies. This is because most large economies are associated with some or the other tax-haven through which these large corporations operate in order to save (read: evade) billions of dollars in taxes. 

Both speakers also highlighted how the introduction of the global minimum tax was in no way a form of economic protectionism and instead promoted trade and encouraged opening up of economies to compete in investing into real resources and markets. On the question of who would really benefit from this, the speakers noted that most MNCs were not going to be benefiting from this at least in the short run. This was because they would have to realign their businesses and operations with the new legislations/regulations and would also generally end up paying higher taxes. However, it was observed that on the flip-side, some MNCs were responding to this positively by seeing the GMT as a move away from complicated legal structures. On the other hand, the economies’ of countries are almost entirely seen to benefit from this by way of more tax revenues, barring a few tax-haven or small economies which will have to increase their tax rates (and hence might lose out on ‘business’). 

The discussion of the impact of such a plan on developing economies, especially India, formed another interesting part of the podcast. Dr. Mansi highlighted how India has acquired a seat at the table of international policy discussions in the recent decade and hence been able to voice interests of developing economies in discussions around the global minimum tax as well. As a result of this, the tax legislation appears to be more flexible and accommodating of larger countries’ interests, further increasing its viability.

Additionally, we discussed how the implementation of the GMT can influence Foreign Direct Investments (FDIs) into countries. In context to this, the speakers suggested that generally FDI isn’t greatly influenced by changes in tax regimes since there are a host of other domestic and international factors that are dominant variables in the determination of FDI. How it could, however, indirectly affect FDI is by terminating base erosion or tax evasion by companies, leading to money being directed into the economy where the company is situated. Moreover, a uniform tax policy globally would create more stability vis-à-vis tax regimes, which is always a positive thing for FDI.  

Overall, the conversation was very insightful. The speakers’ analysis of the GMT from both an economist’s and a tax lawyer’s point of view provided a holistic and comprehensive understanding of the topic. To listen to the full conversation, you can head to our Interlinked page on the website or check us out on Spotify.

This podcast was conducted by Deepanshu Singal, an undergraduate student at Ashoka University, who has a keen interest in Economics, Political Science and International Relations.

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