{"id":33797,"date":"2022-12-19T07:34:01","date_gmt":"2022-12-19T02:04:01","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=33797"},"modified":"2025-04-20T01:42:53","modified_gmt":"2025-04-19T20:12:53","slug":"global-minimum-15-tax-on-big-business","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/global-minimum-15-tax-on-big-business\/","title":{"rendered":"Global minimum 15% tax on big business"},"content":{"rendered":"<h3><strong>What\u2019s in today\u2019s article?<\/strong><\/h3>\n<ul>\n<li><strong>Global tax agreement framed by the OECD \u2013 background, deal agreed by the OECD, impact<\/strong><\/li>\n<li><strong>News Summary<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>Why in News?<\/strong><\/h2>\n<ul>\n<li>Members of the European Union agreed in principle to implement a minimum tax of 15% on big businesses.<\/li>\n<li>Last year, a global deal to ensure big companies pay a minimum tax rate of 15% and make it harder for them to avoid taxation has been agreed by 136 countries.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>Background of Global tax agreement framed by the OECD:<\/strong><\/h2>\n<ul>\n<li>Companies like Apple, Facebook, Google and other tech giants profit enormously from the domestic markets while they make minimal contributions to public coffers.\n<ul>\n<li>Many countries wanted new taxes on these companies.<\/li>\n<\/ul>\n<\/li>\n<li>To address this issue, almost 140 countries started negotiation under the auspices of the OECD (Organisation for Economic Co-operation and Development).\n<ul>\n<li>They were trying to find an agreement on a global tax overhaul to address how multinationals are taxed in the nations where they have users or consumers.<\/li>\n<\/ul>\n<\/li>\n<li>The OECD had proposed two ways:\n<ul>\n<li>Countries would be allowed to have some rights to tax profits made on the basis of sales in their jurisdictions.<\/li>\n<li>It also talked about a global minimum corporate tax rate to stop countries lowering corporate tax rates below that level.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>About Global Tax deal agreed by the OECD<\/strong><\/h2>\n<ul>\n<li>The deal has two main elements \u2013\n<ul>\n<li><strong>Pillar One<\/strong>, which calls for the redistribution of profits generated by the largest companies to the domicile markets where they actually make their sales instead of simply where they are headquartered.\n<ul>\n<li>A quarter of any profits they make above the 10% threshold will be reallocated to the countries where they were earned and taxed there.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Pillar Two<\/strong>, which establishes a global minimum effective tax rate of 15 percent determined on a country-by-country basis.\n<ul>\n<li>Governments will be equipped to impose additional taxes in case companies are found to be paying taxes that are considered too low.<\/li>\n<li>The 15% floor under the corporate tax will come in from 2023, provided all countries move such legislation.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<li><strong>Firms covered by this deal<\/strong>\n<ul>\n<li>This deal will cover firms with global sales above 20 billion Euros ($23 billion) and profit margins above 10%.<\/li>\n<li>It is expected to hit digital giants like Amazon, Google and Facebook.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>What will be the impact of the deal?<\/strong><\/h2>\n<ul>\n<li>Analysts believe that this deal will end the global race to the bottom and help governments collect the revenues required for social spending.\n<ul>\n<li>The OECD estimates the minimum tax will generate $150 billion in additional global tax revenues annually.<\/li>\n<\/ul>\n<\/li>\n<li>Many believe that the plan will also help counter rising global inequality by making it tougher for large businesses to pay low taxes by availing the services of tax havens.\n<ul>\n<li>As per one estimate, taxing rights on more than $125 billion of profit will be additionally shifted to the countries where they are earned.<\/li>\n<\/ul>\n<\/li>\n<li>On the other hand, critics believe that this deal is the threat of tax competition that keeps a check on governments which would otherwise tax their citizens heavily to fund profligate spending programs.<\/li>\n<li>They argue that without tax competition between governments, the world would be taxed a lot more than it is today, thus adversely affecting global economic growth.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>News Summary<\/strong><\/h2>\n<ul>\n<li>EU members have agreed to implement a minimum tax rate of 15% on big businesses in accordance with Pillar 2 of the global tax agreement framed by the OECD last year.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>What is the need for a global minimum tax?<\/strong><\/h2>\n<ul>\n<li>In the past, countries would frequently compete with one another to offer an attractive deal to multinationals companies.\n<ul>\n<li>Due to this competition, global corporate tax rates have fallen from over 40% in the 1980s to under 25% in 2020.<\/li>\n<\/ul>\n<\/li>\n<li>It made sense when those companies might come in, set up a factory and create jobs.<\/li>\n<li>However, the new digital era giants started simply moving profits around, from the regions where they do business to those where they will pay the lowest taxes.<\/li>\n<li>Hence, the OECD\u2019s tax plan tries to put an end to this \u201crace to the bottom\u201d by fixing the global minimum tax rate.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<hr \/>\n<h3><strong>Q1) What is base erosion and profit shifting?<\/strong><\/h3>\n<p>Base erosion and profit shifting (BEPS) refers to tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules to avoid paying tax.<\/p>\n<p>&nbsp;<\/p>\n<h3><strong>Q2) What is meant by race to the bottom?<\/strong><\/h3>\n<p>The race to the bottom is referred to a competitive situation where a country, state or a company tries to undercut the prices of the competition by sacrificing labour costs, quality standards, or sometimes, worker safety as well.<\/p>\n<p>&nbsp;<\/p>\n<hr \/>\n<p><strong>Source:\u00a0<\/strong><a href=\"https:\/\/www.thehindu.com\/business\/Economy\/explained-the-minimum-tax-on-big-businesses\/article66282941.ece#:~:text=Last%20year%2C%20136%20countries%20had,revenues%20by%20%24150%20billion%20annually.\" target=\"_blank\" rel=\"nofollow noopener\">Explained | The minimum tax on big businesses<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>OCED\u2019s global minimum 15% tax on big business aims to discourage profit shifting and tax base erosion.<\/p>\n","protected":false},"author":5,"featured_media":33798,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[],"class_list":{"0":"post-33797","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/33797","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=33797"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/33797\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/33798"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=33797"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=33797"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=33797"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}