How Are Global Nations Trying To Control Big Tech?

How Are Global Nations Trying To Control Big Tech?

The G7 nations recently met to address tax avoidance by big tech companies. Tech companies have been using ‘Tax Havens’ for many years to reduce their federal tax liability. Let’s have a look at how G7 decided to crackdown on tech companies and other MNCs doing tax avoidance.

Crux of the Matter

What is The G7?
Group of Seven is an informal group of world’s 7 largest developed democracies. The objective is to address issues regarding world economy. G7 includes United Kingdom, United States, France, Canada, Germany, Italy, and Japan.

G7 Summit 2021
G7 made a “historic” deal for taxing multinational companies. This deal was made to prevent tax avoidance by making MNCs pay tax in the country they operate. Countries will now charge 15% minimum corporate tax rate on the MNCs.

How Tech Giants Are Taxed?
They are taxed based on where they are headquartered. The international tax system, since pre-digital era, focused on labour, production and capital. In case of tech companies, no physical product is produced and thus identification of where economic activity is taking place is difficult.

Tax Havens
It is a place where tax rates are low. Tech companies set-up shell companies in such countries and channel their profits through them. Countries lose around $427 billion every year due to tax evasion (2019) whereas India lost around $10 billion due to similar evasion (2019).

Problems With The Proposal
Some countries rely on low taxation rates to attract foreign investments. Global minimum taxation rate will take away the tool which these developing countries have. This will slow down the economic growth of such countries.

Impact On India
It won’t affect the MNCs doing business in India as India’s effective corporate taxation rate is higher than the global minimum tax rate. India attracts foreign investment through cheap labour rates and large internal market instead of lower taxation rates.

War In India – Google Tax
Tech giants can avoid paying 6% ‘Google tax’ in India if they set-up an Indian unit. The new IT rules also compel tech companies to set up Indian units for grievance redressal. However, if they set up Indian unit to avoid Google tax or for grievance redressal, they will be taxed at a higher rate of 40%.

  • Originally called BRIC, the name was an acronym of the countries Brazil, Russia, India and China. The term was coined by economist Jim O’ Neill in 2001. South Africa joined the organization in 2010 officially and the acronym since then is BRICS.

India Invited To A New Supergroup

Trump invites India to supergroup, G7

India received invitation for the supergroup, G7 Summit from US President Donald Trump. The move comes in the light of power-shift at international level amidst conflict of interests.

Crux of the Matter

Regrouping Supergroup
President Trump extended an invitation to Indian PM Narendra Modi for attending the G7 summit to be held in the US this September. This is the 2nd consecutive invitation for India after it was invited to attend the summit by France in 2019. The step comes at a time when Trump is attempting to increase the G7 to G11. His proposed new members are India, South Korea, Australia, and Russia.

What Is G7?
Group of Seven is an international body consisting of superpower nations like Canada, Italy, Germany, France, the US, Japan, and the UK. The European Union (EU) is an invitee to the group. The mentioned 7 countries constitute 46% of the Global GDP. The group was formed to discuss international problems like economy, environment, world health, etc while formulating policies for worldwide security.

While the group was originally G8, Russia was expelled in 2014 due to its annexation of Crimea. The controversy advanced in 2018 when Trump wanted to include Russia back. However, the decision was not supported by the other 6 members which also reaffirmed their original decision.

In June 2020, Trump expressed wish to include new nations in the G7, including Russia. However, Russia called, in turn, to include China in the group. The set of events comes at a time when the US, Australia, and several other nations are trying to take measures against China for its opacity in Coronavirus dealing. China has criticized the exclusion, labeling the move as “circling against China”. It also observes the inclusion of India over itself as siding with India amidst increased border tensions.

  • The United Nations Security Council “veto power” refers to the power of the five permanent members of the UN Security Council (China, France, Russia, the United Kingdom, and the United States) to veto any “substantive” resolution. The veto power is controversial. Supporters regard it as a promoter of international stability, a check against military interventions, and a critical safeguard against US domination.
  • In 2014, Russia was suspended from G8 indefinitely following the annexation of Crimea, whereupon the political forum name reverted to G7 (As it was till 1996). In 2017 Russia announced its permanent withdrawal from the G8.
  • The European Union (EU) is a political and economic union of 27 member states that are located primarily in Europe. The EU has developed an internal single market through a standardized system of laws that apply in all member states in those matters, and only those matters, where members have agreed to act as one. 19 member states have the euro as their currency.