Breaking Down the Global Minimum Tax: Key considerations for developing nations

financialexpress.com:

The global minimum tax is arguably the most important topic in the much talked-about international tax reform, with implications for both developed and developing countries. While taxing the digital economy has taken the limelight in the headlines, the global minimum tax has the potential to have a significant impact, especially on developing nations.

In this column, I have explored the key considerations for developing countries in light of the global minimum tax and discussed how they can navigate this new tax landscape.

The global minimum tax was agreed upon by 137 countries and jurisdictions as part of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS). The aim of the global minimum tax is to ensure that multinational enterprises (MNEs) pay a minimum tax rate of 15% in each country where they operate, thus preventing profit shifting and tax avoidance.

The OECD’s initiative consists of two pillars. Pillar one focuses on addressing tax challenges arising from digitalization of the economy.

Pillar two, known as the Global Anti-Base Erosion (GloBE) rules, establishes the base rate approach for the global minimum tax. It sets a minimum tax rate of 15% for MNEs with a turnover above a certain threshold. The intention is to prevent MNEs from shifting profits to low-tax jurisdictions and engaging in harmful tax competition.

Also Read: Gold Buying: 3 best options to invest in gold & how to do it

While the global minimum tax has been heralded as a major step towards fairer taxation, developing countries have expressed their concerns about its potential impact.

One of the main concerns for developing countries is the potential loss of tax incentives. These countries fear that the elimination of tax