India to push G20 to raise share of taxes on cos which earn excess profit

Government officials said India will push its G20 partners at a meeting it is hosting to support its proposal to raise the share of taxes paid by multinational corporations to countries where they earn “excess profits”.

India’s proposal, which has not been reported before, could dampen optimism among G20 members such as Australia and Japan that a meeting of finance ministers and central bank governors in Gujarat will make progress on the long-awaited reform of global corporate taxes.

More than 140 countries were supposed to start implementing the 2021 agreement next year to overhaul decades-old rules on how governments tax multinational corporations. The current rules are widely considered archaic as digital giants like Apple or Amazon can still make profits in low-tax countries.

The deal, paid for by the US, would impose a minimum 15% tax on large global corporations, plus an additional 25% tax on “excess profits,” as defined by the Organization for Economic Co-operation and Development (OECD).

But many countries have concerns about the multilateral treaty that forms the basis of a key component of the plan, and some analysts say the reform is in danger of unraveling.

“India has made proposals to get its due share of tax rights on the excess profits of multinational corporations,” said one of the officials. The official said the proposals were submitted to the Organization for Economic Co-operation and Development and would be discussed “extensively” during the G20 meeting on Monday and Tuesday.

Three officials, who asked not to be named because discussions with the Organization for Economic Co-operation and Development are ongoing and the G20 meeting has not started, said India wants big increases in taxes paid in countries where the companies do business. They did not specify how much India is seeking.

India’s finance and external affairs ministries and the Organization for Economic Co-operation and Development did not respond to requests for comment.

Under the agreement, global companies with annual revenues of more than 20 billion euros ($22 billion) are considered to be making excess profits if their profits exceed 10% annual growth. The 25% surcharge on this excess earnings is divided between countries.

India, which is fighting for a higher share of taxation for the markets in which companies operate, is the world’s most populous country and is set to become one of the largest consumer markets. The average income of the Indian people is set to grow more than 13-fold to $27,000 by the end of 2047, according to a survey by the People’s Research Center on India’s Consumer Economy.

The G20 host country will also propose separating withholding taxes from the excess profits tax principle. The rules now say that countries offset their share of the taxes with the withholding tax they collect.

Withholding tax is collected by businesses while making payments to vendors and employees, and remitted to the tax authorities.

The Organization for Economic Co-operation and Development said in a document released on Wednesday that few jurisdictions had expressed concerns about the allocation of tax rights between countries.

“Efforts are underway to resolve these issues with the aim of preparing the multilateral agreement for signing quickly,” she added.