With an aim to bring global harmonization in the world economic scenario in a post-pandemic setup, the 2021 edition of the G20 Finance Ministers summit was a much anticipated global event before the G20 Global Summit in October, 2021. Italy hosted the G-20 Finance Ministers’ meeting to discuss the fight against COVID-19 and how to speed up the recovery of the global economy.
With an in-person gathering of the finance ministers of Argentina, Australia, Brazil, Canada, China, Germany, France, India, Indonesia, Italy, Japan, Mexico, the Russian Federation, Saudi Arabia, South Africa, South Korea, Turkey, the UK, and the US, the consortium deliberated on various financial matters of global importance whilst focussing on three pillars of importance for 2021 – People, Planet & Prosperity.
2. Discussion on Tax Havens
The two-day conference discussed at length the issues faced by the economies of the 20 member states and exchanged ideas and strategies to recover the respective economies at the earliest. However, one of the crucial problems which occurred as a common set-back to the economies and the financial task forces of the respective member states was the rampant misuse of tax havens.
3. What is a Tax Haven
A tax haven is an offshore country that allows wealthy individuals and business owners to bank with the country’s local institutions in order to avoid paying home country taxes on gains or profits. These tax haven countries offer the benefit of little to no tax liability, and company owners or consumers with considerable wealth do not usually need to be citizens to take advantage of this kind of tax loophole.
As a result of this tax haven structure, business owners and wealthy consumers pay little or even no taxes on their profits or personal finances. In other words, tax havens offer a way for companies and affluent individuals to avoid higher corporate tax rates or income tax in their home countries. Emerging economies like India are one of the biggest victims of this practice of off-shore tax havens.
4. Solution to the Problem of Tax Haven: Minimum Corporate Tax Slab
It was debated that amidst an increasingly digital global economy, the G- 20 can help set the stage for ensuring that everyone pays their fair share, including by reforming the international taxation system, complementing the recent agreement by the G-7 on disclosing tax havens and responding to the requests of requesting countries on disclosing defaulters.
It was collectively agreed upon that one key element would be a multilaterally agreed level of minimum taxation on multinational corporations in the home country (if profits are undertaxed abroad) or abroad (if profits are undertaxed in the home country). Such actions, as well as transparency and accountability measures, would have the added benefit of helping to strengthen fiscal buffers and create space for essential infrastructure spending for strong, sustainable, balanced, and inclusive growth, including in developing economies that face intense tax competition.
India’s Stance On Countering Tax Havens: Affirming 15% Corporate Tax
India’s Union Finance Minister Ms. Nirmala Sitharaman shared India’s innovative policy mix for better environmental outcomes such as new energy map of India, digital innovation and emerging fuels, solar alliance for enabling clean energy and international promotion of energy efficiency and afforestation. India also committed itself towards the newly introduced 15% corporate tax and assured the G20 community about its active persuasion in the Indian Parliament in its upcoming monsoon session.
India also agreed that it is an indispensable fact that reform of the international trade system is essential for growth to be shared globally. Amid continued trade tensions, reform of the international trade system, including WTO reform, is vital for trade to most effectively support the recovery, not least as shifts in production toward self- reliance and reorganization of supply chains would weigh on growth. The goal should be a more open, stable, and transparent trade policy.
Overall, the G-20 members recognised that the global outlook and stability has been achieved to a large extent and the situation is expected to improve even further mainly because of the roll out of vaccines and continued policy support.
However, the economic recovery is uneven across and within countries, and remains exposed to downside risks. The leaders reaffirmed their willingness to use all available policy tools and to continue to sustain the economic recovery for as long as required, to address the adverse consequences of the pandemic, especially on the most impacted groups of the society.
On the basis of the G20 Action Plan, the G20 will continue its efforts to steer the global economy toward strong, sustainable, balanced and inclusive growth. The third G20 Finance Ministers’ meeting brought to a historic agreement on a more stable and fairer international tax architecture. Ministers and Governors endorsed the key components of the two pillars on the reallocation of profits of multinational enterprises and an effective global minimum tax.