G20 Summit: Deciding on Global Money Matters

The recently concluded G20 summit in New Delhi has yielded a comprehensive joint declaration, addressing a range of critical global issues, from digital public infrastructure to gender equality, money laundering, and financial sector reforms. However, it’s the summit’s emphasis on tax matters that is capturing widespread attention.

Two-Pillar Tax Package

In a bid to foster a globally fair and modern international tax system befitting the 21st century, G20 leaders have committed to the swift implementation of the ‘Two-Pillar’ international tax package. Under ‘Pillar One,’ market jurisdictions like India will gain the authority to impose income tax on sales generated within their territories by giant e-commerce digital platforms, such as Amazon, Google, and Facebook. This move closes a longstanding loophole these companies have used to avoid Indian tax liabilities due to the absence of a physical presence in the country. It also signals the eventual withdrawal of unilateral measures like the equalisation levy.

Meanwhile, ‘Pillar Two’ introduces a global minimum corporate tax rate of 15% for large multinational corporations. Any shortfall between this global minimum rate and the tax rate in low-tax jurisdictions must be paid by these corporations as a top-up tax. This measure aims to curtail the practice of MNCs shifting profits from higher-tax jurisdictions to lower-tax ones through complex subsidiary networks.

Rules About Crypto

Perhaps one of the most significant developments in the joint declaration is the G20’s call for the swift implementation of the Crypto-Asset Reporting Framework (CARF) and amendments to the ‘Common Reporting Standard’ (CRS). CARF, developed in response to the surging crypto-asset market, standardises the reporting of tax information on crypto transactions. This information will be automatically exchanged with taxpayers’ residence jurisdictions annually. As a result, crypto transactions on foreign-based exchanges by Indian residents will no longer escape scrutiny, as CARF ensures automatic exchange of information, eliminating the possibility of concealment.

The amended CRS is another crucial aspect, enhancing tax transparency concerning financial accounts held abroad. This amendment will compel Indian taxpayers to disclose foreign bank accounts and overseas asset holdings, leaving no room for hiding assets from tax authorities.

In addition to these measures, the G20 has taken cognisance of the OECD’s report on ‘Enhancing International Tax Transparency in Real Estate’ and the Global Forum Report on ‘Facilitating the Use of Tax-Treaty-Exchanged Information for Non-Tax Purposes’. Historically, the confidentiality laws of tax havens and low-tax jurisdictions have hindered Indian tax authorities. Moreover, information obtained through tax treaty agreements has been limited to the income tax department. However, following the Indian G20 presidency’s request, a methodology is being developed to broaden the use of treaty-exchanged information for other regulatory agencies, such as the Enforcement Directorate, Central Bureau of Investigation, and Serious Fraud Investigation Office.