India to gain from G7 tax plan; G20 decision in July | Economic Times

India would be able to tax profits of large corporates operating in the country without having a physical presence at 20% of their profits if proposals of the G7 group of advanced economies are agreed upon globally.The government is yet to take a view on the G7 proposals to make multinationals pay tax in countries they operate in. The proposals will be discussed by the G20 group that includes India and China next month in Venice. The G7 has agreed on two key proposals – a 15% global minimum tax on a country-by-country basis, and a commitment to reach an equitable solution on the allocation of taxing rights, with market countries awarded taxing rights of at least 20% of profit exceeding a 10% margin of multinational enterprises.Global minimum tax implies that countries will have to keep at least a 15% corporate tax rate. If implemented, countries such as Ireland, the Netherlands and Luxembourg that offer lower tax rates, and the so-called tax havens such as Bahamas or British Virgin Islands could lose their attractiveness. These countries are likely to oppose the proposal. Large tech corporations such as Apple, Facebook, Google and Amazon would have to pay more taxes as their incentive to park profits in low-tax jurisdictions would go away. Companies would have to restructure their corporate structures to adhere to the law changes.83296766India ImpactFor India, the first proposal would be beneficial in cases when lower tax jurisdictions receive income from markets like India where digital multinationals operate, experts said.“India could possibly be granted a right to tax such incomes by invoking a digital nexus, where the enterprise derives significant economic value from users or transactions that emanate from that jurisdiction,” said Rohinton Sidhwa, partner at Deloitte India.Amit Maheshwari, partner at professional services firm AKM Global, said there may be a greater move towards hubs of production and distribution in countries with moderate rates of 15-20%. In that context, India’s concessional tax regime would still work, and it would continue to attract investment, he said.However, once the G7 proposals are accepted by the G20 and the Organisation for Economic Cooperation and Development (OECD), countries like India and France among others would have to revoke the equalisation levy or digital services tax.