Tax Reforms

Report Calls for Global Minimum Tax on Billionaires

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Global Tax Evasion Report

Mains level: Call for tax on billionaires

Tax

Central Idea

  • The release of the ‘Global Tax Evasion Report’ marks a pivotal moment in the global fight against tax evasion.
  • This report serves as a comprehensive analysis of the state of global taxation and its implications.

About Global Tax Evasion Report

  • The ‘Global Tax Evasion Report’ is compiled by the EU Tax Observatory, a research institution specializing in international tax matters, established in 2021.
  • This inaugural edition of the report is the result of collaborative efforts involving over 100 researchers from across the globe, working alongside tax authorities.
  • It represents the first systematic attempt to analyze available data in the field of taxation.

Global Minimum Tax for MNCs

  • Established in October 2021 by 136 countries, including India, setting a 15% global minimum tax rate for MNCs.
  • Major economies are aiming to discourage multinational companies from shifting profits – and tax revenues – to low-tax countries regardless of where their sales are made.

 

Tax Haven

A tax haven is a foreign country or corporation used to avoid or reduce income taxes, especially by investors from another country. A tax haven is a country or place that has a low rate of tax so that people choose to live there or register companies there in order to avoid paying higher tax in their own countries.

Key Findings of the GTE Report

The report uncovers the following pivotal findings:

  • Reduction in Offshore Tax Evasion: Wealthy individuals’ offshore tax evasion has significantly declined over the past decade, primarily due to the automatic exchange of bank information, resulting in a three-fold reduction in evasion.
  • Profit Shifting to Tax Havens: MNCs shifted approximately $1 trillion to tax havens in 2022, accounting for 35% of their global profits. This has led to a substantial loss in global corporate tax revenues, impacting approximately 10% of total collections, with U.S. multinationals playing a prominent role.
  • Global Minimum Tax Impact: The expected positive impact of the 15% global minimum tax rate on MNCs has been weakened by various loopholes.
  • Low Taxation for Billionaires: Billionaires globally often experience effective tax rates ranging from 0% to 0.5% of their wealth, utilizing shell companies to evade income taxes.
  • Aggressive Tax Competition: New forms of aggressive tax competition have emerged, eroding government revenues and exacerbating inequality.

Proposed solutions

  • Empowering ‘Automatic Exchange of Bank Information’: Launched in 2017 to combat offshore tax evasion by affluent individuals. Facilitated the sharing of deposit information with foreign tax authorities.
  • Global Minimum Tax on Billionaires: Proposes a 2% global minimum tax on billionaires, mirroring the model for MNCs, ensuring minimum tax rates for the wealthiest individuals.
  • Strengthening Global Minimum Tax for MNCs: Advocates for reinforcing the global minimum tax for MNCs while eliminating existing loopholes, potentially augmenting global corporate tax revenues by $250 billion annually.
  • Fair Allocation of Additional Revenues: Proposes mechanisms for equitable distribution of additional tax revenues generated by these measures among countries.

Conclusion

  • The GTE report illuminates substantial progress in curbing tax evasion while underscoring persistent challenges and reform opportunities.
  • The proposed solutions aim to foster international collaboration in addressing tax-related issues and promoting fiscal equity on a global scale.

Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

Attend Now

Subscribe
Notify of
0 Comments
Inline Feedbacks
View all comments

JOIN THE COMMUNITY

Join us across Social Media platforms.

💥Mentorship New Batch Launch
💥Mentorship New Batch Launch