Image Source: Moneycontrol
At the recently wrapped-up summit in New Delhi, G20 leaders embraced a collective statement that addressed various topics. These ranged from digital public infrastructure and gender equality to combating money laundering and implementing reforms in the financial sector. The overarching goal was to foster robust, sustainable, balanced, and inclusive global growth.
When G20 leaders convene to discuss a myriad of socio-economic and geo-political policy matters, it’s inherently viewed as a step forward. However, when their conversations delve into the realm of ‘tax,’ it piques everyone’s interest. In their collective statement, G20 leaders affirmed their commitment to ongoing collaboration for a globally fair, sustainable, and contemporary international tax system that aligns with the demands of the 21st century.
The G20 has restated its dedication to promptly implementing the ‘Two-Pillar’ international tax framework. ‘Pillar One’ involves allocating a specific portion of taxing rights to market jurisdictions rather than residential ones. For example, within ‘Pillar One,’ India gains the ability to levy a portion of income tax on sales generated in the Indian marketplace by major e-commerce digital platforms such as Amazon, Google, Facebook, and ChatGPT. These platforms typically assert non-applicability of Indian tax liability due to the absence of any permanent establishment (PE) in the country. However, unilateral measures like the equalization levy will need to be withdrawn following the implementation of ‘Pillar One.’
Major US-based multinational corporations, including Apple, Amazon, Google, and Facebook, have consistently employed intricate networks of international subsidiaries established in low-tax jurisdictions or tax havens, utilizing various channels to reduce their tax liabilities. Pillar Two introduces a global minimum corporate tax rate of 15% for these large multinational corporations. This means that any deficit between this global minimum tax rate and the tax rate in the low-tax jurisdiction must be covered by these corporations as a supplementary tax.
A notable aspect of the collective statement is the G20’s emphasis on promptly implementing the Crypto-Asset Reporting Framework (CARF) and making revisions to the ‘Common Reporting Standard’ (CRS).
CARF, developed in response to the rapid expansion of the crypto-asset market under the G20’s directive, establishes a standardized framework for reporting tax information on crypto asset transactions. This framework facilitates the automatic exchange of such information with taxpayers’ jurisdictions of residence on an annual basis. Consequently, crypto transactions carried out by individuals in India on crypto exchanges based abroad will now fall within the scope of the automatic exchange of information protocol outlined in CARF. This means that hiding or concealing such crypto transactions becomes impractical.
Similarly, with the amended Common Reporting Standard (CRS), which demands increased tax transparency regarding financial accounts held overseas, it becomes exceedingly challenging for individuals in India to avoid disclosing their foreign bank accounts and assets held abroad to tax authorities.
The G20 has acknowledged the OECD (Organisation for Economic Co-operation and Development) report on enhancing international tax transparency in real estate, as well as the Global Forum Report on facilitating the utilization of tax-treaty-exchanged information for non-tax purposes. Currently, the confidentiality laws in tax havens and low-tax jurisdictions often impede Indian tax authorities. Additionally, information obtained through tax treaty agreements related to undisclosed foreign assets or real estate holdings of Indian residents cannot be readily utilized by regulatory agencies such as the Enforcement Directorate, Central Bureau of Investigation, Serious Fraud Investigation Office, etc., aside from the income tax department.
In response to a request from the Indian G20 presidency, efforts are underway to develop a methodology that streamlines the broader utilization of treaty-exchanged information among interested jurisdictions.
Following the successful convening of the historic G20 summit under India’s presidency, failing to disclose any crypto transaction, foreign bank account, or real estate holding abroad to Indian tax authorities could result in substantial regulatory fines and penalties.