Global investors want the Indian tax carrot, not the uncertainty that sticks

The initiative by the countries, which between them control 90% of global economic activity, was part of a two-pillar solution to fairly tax the real winners of globalization and – ultimately – multinationals like Meta, Google and many others. Companies that reduce their tax exposure by incorporating themselves in tax havens.

The purpose of the first pillar is to ensure a fair distribution of tax rights among the jurisdictions of the largest and most profitable multinational companies. It is expected that G20 finance ministers will welcome the draft multilateral convention to implement Pillar 1 at their meeting in July. The second establishes a global minimum effective corporate tax rate of 15%.

The establishment of the so-called global minimum tax is the result of nearly 15 years of negotiations between the G20 and the OECD on what they call a “tax fairness” agenda. In short, the G20 has introduced a regime of tax regulation for globalization. As a result, international tax is no longer an obscure technical exercise for tax lovers; Instead, it has become a highly political, highly relevant and highly scrutinized topic for the greater public.

In 2009, in the wake of the global financial crisis, the G20 launched its own tax agenda dealing with the issue of bank secrecy. In 2012, the G20 led an allegation of tax avoidance by multinationals, labeled as base erosion and profit shifting (BEPS). For decades, companies exploited the weaknesses of an international tax system designed in the 1920s, shifting their profits to tax havens. With the establishment of BEPS and a global minimum tax, this culture of evasion is coming to an end. Public scrutiny enabled by increased tax transparency obligations (such as public country-by-country reporting in Europe) is putting pressure on companies to act with greater social responsibility as part of their ESG obligations. With the end of bank secrecy, tax cooperation between tax administrations has become the rule rather than the exception.

Between 2007 and 2022, as director of the Center for Tax Policy and Administration at the OECD, I led the work on reforming the international tax system. I am proud to have brought India into the conversation as a key member of the Global Forum on Transparency and the Inclusive Framework on BEPS. The time has come for an inclusive tax dialogue.

The issue of tax certainty in India: India’s ambitious international tax agenda, set during India’s current G20 Presidency, is a testimony to the value of these global efforts. While a 15% global minimum tax is being implemented by a growing number of countries, including Japan, Canada, Korea, Indonesia, Switzerland and the United Arab Emirates, as well as the European Union, negotiations continue on a fairer distribution of tax rights through Pillar 1. Is. It is hoped that these talks will be held under the Indian G20 chairmanship.

Pillar 1 will allocate more taxing authority to market jurisdictions such as India. It will also provide greater tax certainty to businesses. At a time when significant progress has been made in fighting tax evasion and tax avoidance and furthering transparent reporting, it is important that the international tax community focus on tax certainty.

Tax certainty should be a fundamental right of compliant taxpayers. Tax certainty is about guaranteeing fair and predictable tax treatment based on the rule of law. It is also about guaranteeing fair resolution of tax disputes to companies, including mandatory mechanisms. It is not just about doctrinal principles, but about supporting trade, investment and economic growth, and has become a priority for governments and businesses alike.

India sends some of the world’s brightest tax experts to the OECD. They lead negotiations with other G7 and G20 countries. But India suffers from a negative reputation for its tax administration practices. Progress has been made in reforming international dispute resolution, but much remains to be done to promote growth and investment. The current government in New Delhi has made considerable progress in this regard over the years.

Implementing Pillar 2 will eliminate a means of tax incentives to attract investment, and some are already complaining. India does not need tax incentives to attract investment. It is the fastest growing market in the world. What it needs is tax certainty. Companies will benefit from the carrot of the tax holiday, not the stick of tax uncertainty. It is time for India to make tax certainty one of its top priorities.

Pascal Saint-Amans is a partner at the Brunswick Group based in Paris, professor of tax policy at the University of Lausanne and former director of the Center for Tax Policy and Governance at the OECD.