India pushes for tax reform on MNC’s profits, urges G20 to support fair taxation on ‘excess profits.’

The Indian government is actively preparing to introduce a new tax reform that aims to increase the share of taxes paid by multinational corporations (MNCs) to the countries where they generate significant profits. With this move, India is urging its Group of 20 (G20) partners to bolster the proportion of taxes collected from MNCs on their ‘excess profits’, according to a government official cited by Reuters.

This proposed reform has the potential to have a substantial impact on the global corporate landscape by challenging outdated regulations and striving for a fairer and more equitable taxation system.

Over 140 nations were scheduled to commence the implementation of a groundbreaking agreement in 2021 that seeks to revamp long-standing rules governing the taxation of multinational corporations. The current regulations have been widely regarded as obsolete, especially in light of the rise of digital giants like Apple and Amazon, which often report profits in jurisdictions with low tax rates.

The United States spearheads the international agreement that seeks to impose a minimum 15 percent tax on large multinational corporations. Additionally, the agreement includes an extra 25 percent tax on “excess profits,” as defined by the Organization for Economic Cooperation and Development (OECD).

Despite the United States’ efforts to rally support for this agreement, reservations and concerns from several countries have posed a threat to its implementation. In response to the uncertain prospects of the global agreement, India has taken the initiative to put forth its own proposal as an alternative solution.

Reuters cited an official who revealed that India has put forward recommendations to ensure it receives its fair share of taxation rights on the surplus earnings of multinational corporations. These proposals have been submitted to the Organization for Economic Cooperation and Development (OECD) and are expected to be thoroughly discussed during the G20 summit held on Monday and Tuesday.

Under the agreement, global companies generating annual revenues exceeding $20 billion will be considered to have excess profits if their annual profit growth surpasses 10 percent. The proposed measure suggests a 25 percent levy on these excess revenues, which would be distributed among nations accordingly.

India, renowned as the world’s most populous nation and one of the largest consumer marketplaces, is actively advocating for a larger portion of taxes to be allocated to the markets where corporations conduct their business. According to the People’s Research on India’s Consumer Economy, the average household income in India is projected to more than triple to $27,000 by the end of 2047, further highlighting the country’s growing economic significance.

As the host country of the G20 summit, India will additionally propose the separation of withholding taxation from the concept of excess profit tax. The existing guidelines necessitate that countries offset their tax share through the withholding tax collected by companies when making payments to vendors and workers.

In a recent publication, the Organization for Economic Cooperation and Development (OECD) acknowledged that a few jurisdictions have expressed reservations regarding the equitable distribution of taxation rights among nations. The OECD further affirmed that efforts are being made to address these concerns and prepare the Multilateral Convention for prompt implementation and signing.