US nudges India to back its plan for global minimum tax

US nudges India to support its proposal for global minimum tax rate

Sitharaman received a call from US Treasury Secretary who sought New Delhi’s support to the proposal

 Representative Image. Credit: Reuters Photo

Even as India has reservations about the proposal mooted by the United States for a global minimum corporate tax rate, President Joe Biden’s administration has nudged Prime Minister Narendra Modi’s government to support the move.

Finance Minister Nirmala Sitharaman received a call from US Treasury Secretary, Janet Yellen, who sought New Delhi’s support to the proposal for a global minimum corporate tax rate. The US move is aimed at stopping multinational companies from registering in countries with low tax rates in order to avoid paying taxes in higher rates in the countries where they are actually running the business.

Yellen told Sitharaman that the US and India had a shared interest in implementing a robust global minimum tax. She also “stressed” the “importance of partnership” between the two nations in the G20 and OECD (Organization for Economic Cooperation and Development) to seize “a once-in-a-generation opportunity” to remake the international tax system to help the global economy thrive, according to a statement released by the Treasury Department of the US Government.

The Biden Administration is working on an infrastructure investment plan to revive the US economy from the Covid-19 mess and wants to fund the program by increasing the corporate tax rates. It is also keen to plug loopholes that the US companies could use to evade higher tax at home by registering in a low-tax nation and offshoring profits and hence has been arguing for a global minimum corporate tax to “stop the race to bottom”.

The Modi Government, however, is opposed to the US proposal. New Delhi over the past few weeks conveyed to the Biden administration that it was not keen to accede to a global minimum corporate tax rate as it would infringe on its sovereign rights to decide on its own taxation system.

India is also keen to keep its tax regime favourable for businesses in order to draw investment to bring the Covid-19-hit economy back on track.

The Modi Government in fact slashed the corporate tax rate even before the shutdowns and travel restrictions imposed to contain the Covid-19 pandemic hit the economy. It brought down the tax rates from 30 per cent to 22 per cent for existing domestic manufacturing companies and from 25 per cent to 15 per cent for the new ones.

The US already got the G7 nations nod last month on the global minimum tax rate of 15 per cent. The Biden Administration is now keen to get wider support for it – from the G20 and the OECD. Yellen and Sitharaman will attend the meeting of G20 Finance Ministers on July 9 and 10, when the issue will be discussed again.

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