Minimum alternate tax for Multinational corporations is the need of the hour to prevent the loss of revenues in the developing countries. Discuss (200 Words)
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IAS Parliament 5 years
KEY POINTS
· Managing Director of IMF, has called upon the developing countries to impose heavier taxation on MNCs. As large MNCs pay little tax and avoid normal tax with ease, the current situation is harmful to low income countries.
· Developing countries are vulnerable to the phenomenon of Base Erosion and Profit-Shifting. Non-OECD countries collectively lose about $200 billion per year in revenue, this is about 1% of their GDP.
· Principles governing the transfer pricing law and its concomitant arms-length guidance allowed profitable firms to pay little tax. There is a need for an alternative international tax architecture.
Measures for global tax architecture
· Create minimum tax schemes and reduce the scope for shifting profits to low tax locations.
· Apply principles governing inbound investment allowing low income countries to retain more revenue by imposing minimum withholding taxes on cross-border payments like fees for services charged by the parent companies to local subsidiaries.
· Create a system that fully taxes routine profits on basic activities in the country in which they take place, while splitting any remaining profits among all the relevant nations. This is the ‘residual profit allocations’ approach. This will call for multilateral agreement.
· Multinationals may lose profits nominally in India but they extract large sums through royalties and other fees which are all tax deductible. They accumulate losses in India in order to ward off competition in the future.
· The IMF points out that Double Tax Agreements impose revenue risks for developing countries by limiting the source taxing rights in order to attract FDI.
Raj 5 years
Kindly Review. Thanks!!
IAS Parliament 5 years
Good
answer. Keep Writing.
Raj 5 years
