Jeetendra Prakash | Aug 10, 2021 09:19
Also written by: Mohit Choudhary
Need to change archaic tax laws
Taxing traditional business models is relatively simple, as an entity’s taxability could be linked to its physical presence in a country. However, in a highly digitalised era, the taxability of tech companies is blurred significantly, as revenue generation and value-add do not necessitate a physical presence in the country of operation.
A study by the IMF estimates that tax havens cost governments USD500-600bn per annum, mostly in corporate tax revenue. To put this in perspective, 55 corporations in the US paid no federal taxes in 2020, according to the Institute on Taxation and Economic Policy.
To prevent tax erosion, the UK, India, Italy, Spain, France and other European countries have unilaterally started levying a Digital Service Tax (DST) on non-resident digital service providers by taxing 2-3% of the revenue earned from domestic users.
The G7 corporate tax deal – the background and details
The Biden administration seems to be working its way back to the global centre stage, as evidenced by a softened stance on global minimum taxes to push the G7 tax deal. The (domestic) corporate tax cuts introduced by the previous administration cannot be reversed in isolation; hence, the US is focused on developing a multilateral agreement to resolve the digital and other international tax issues with other countries.
On 5 June 2021, the G7 countries (the US, the UK, Germany, Canada, France, Italy and Japan) agreed to create tax reforms aimed at multinational companies that bypass taxes through tax haves and remove the DST. Removing the DST would make the tax structure uniform internationally.
The deal is based on two pillars:
Implications
Conclusion and key takeaways
Appendix
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