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Finance Ministers from the Group of Seven (G7) rich nations reached a landmark accord setting a global minimum corporate tax rate, an agreement that could form the basis of a worldwide deal.

Highlights

• The deal aims to end what U.S. Treasury Secretary Janet Yellen has called a “30-year race to the bottom on corporate tax rates” as countries compete to lure multinationals.
• Major economies are aiming to discourage multinationals from shifting profits — and tax revenues — to low-tax countries regardless of where their sales are made.
• Increasingly, income from intangible sources such as drug patents, software and royalties on intellectual property has migrated to these jurisdictions, allowing companies to avoid paying higher taxes in their traditional home countries.
• With its proposal for a minimum 15% tax rate, the Biden administration hopes to reduce such tax base erosion without putting American firms at a financial disadvantage, allowing competition on innovation, infrastructure and other attributes.

Where does India stand?

• In a bid to revive investment activity, Finance Minister Nirmala Sitharaman on September 21, 2019 announced a sharp cut in corporate taxes for domestic companies to 22% and for new domestic manufacturing companies to 15%.
• The Taxation Laws (Amendment) Act, 2019 resulted in the insertion of a section (115BAA) to the Income-Tax Act, 1961 to provide for the concessional tax rate of 22% for existing domestic companies subject to certain conditions including that they do not avail of any specified incentive or deductions.

Source: The Hindu