Illusion Of Redistributive Justice

Context: There is more to the proposal for global minimum tax than meets the eye.

Issues with the global digital taxation

• Complex proposal trying to shore up resources from developing nations: Under OECD’s proposals -
  • Under Pillar One Proposal:
    • The allocation of tax made under Pillar One to markets will be added to taxes collected in the calculation of a minimum rate in a country.
    • Any digital services tax such as the equalisation levy will not count as tax paid for the calculation of the minimum rate.
  • Under Pillar Two Proposal:
    • The first right to tax (the differential between the actual and the effective tax rate) lies with the jurisdictions of the ultimate parent entities (>750 euros) the first right to tax the differential between the actual and the effective tax rate.
    • Source countries such as India have the right to withhold a higher rate on cross-border payments but is subject to certain thresholds and, more so, would require bilateral treaty renegotiations.
• Tax incentives no longer available: There are small countries that hang by the thread of limited means. Taxation remains the only alternative for them.
  • Even for a country like India, the recent push to bring foreign investors through the international financial services centre is an incentive; Therefore, concerns of loss of sovereignty to tax remain.
• Non-inclusive deliberation: Under the Base Erosion and Profit Shifting (BEPS) programme, countries like India shaped the proposal to give countries their due share.
  • On the contrary, the G-7 meet evoked a sense of deja vu where rules for the world were being decided by select developed countries.

Conclusion: If all do not agree to the global minimum tax proposal, it may spark a new sort of competition — corporations will search for countries without the minimum tax rule as their residence. To avoid chaos, countries are being offered the illusion of redistributive justice.