Context:

Recently, the Finance Ministers from the G7 nations reached a landmark accord to set a Global Minimum Corporate Tax Rate (GMCTR) to 15%.

Global Minimum Corporate Tax Rate

• GMCTR is the minimum tax, charged on multinationals companies (MNCs) by the countries.
• Objective: To discourage MNCs from shifting profits and tax revenues to low-tax countries regardless of where their sales are made.

Reason behind the move

• Increasingly, income from intangible sources has migrated to these jurisdictions, allowing companies to avoid paying higher taxes in their traditional home countries.
  • Income from intangible source: drug patents, software and royalties on intellectual property.
  • A minimum 15% tax rate will reduce such tax base erosion without putting fi ms at a financial disadvantage, allowing competition on innovation, infrastructure and other attributes.
  • Applicability: The global minimum tax rate would apply to overseas profits.

India’s Stand:

• India is likely to benefi t from the global minimum 15% corporate tax rate pact as the effective domestic tax rate is above the threshold, and the country would continue to attract investment. 
• Indian government had reduced the corporate tax rate to 22% for companies in 2019 that gave up all exemptions and incentives. Further, a 15% rate was offered to new manufacturing firms.
• The effective tax rate, inclusive of surcharge and secs, for Indian domestic companies is around 25.17%.

Group of Seven (G7)

• It is an intergovernmental organisation that was formed in 1975.
• The bloc meets annually to discuss issues of common interest like global economic governance, international security and energy policy.
• The G7 countries are the UK, Canada, France, Germany, Italy, Japan and the US.
• All the G7 countries and India are a part of G20.
• The G7 does not have a formal constitution or a fixed headquarters. The decisions taken by leaders during annual summits are non-binding.