1.Global pact on minimum corporate tax of 15%

It will end ‘race to bottom’ among countries wooing MNCs

A milestone global deal to ensure big companies pay a minimum tax rate of 15% and make it harder to avoid taxation has been agreed after Ireland, Estonia and Hungary signed up to an accord, which U.S. President Joe Biden said levelled the playing field.

The deal aims to end a four-decade-long “race to the bottom” by governments that have sought to attract investment and jobs by taxing multinational companies only lightly and allowing them to shop around for low tax rates.

Negotiations have been going on for four years, moving online during the pandemic, with support for a deal from U.S. President Biden and the costs of the COVID-19 crisis giving it additional impetus in recent months.

Level field: Biden

“Establishing, for the first time in history, a strong global minimum tax will finally even the playing field for American workers and taxpayers, along with the rest of theworld,” Mr. Biden said in a statement.

The deal aims to prevent large firms from booking profits in low-tax countries like Ireland regardless of where their clients are, an issue that has become ever more pressing with the rise of “Big Tech” giants that can easily do business across borders.

Out of the 140 countries involved, 136 supported the deal, with Kenya, Nigeria, Pakistan and Sri Lanka abstaining for now.

The Paris-based Organisation for Economic Cooperation and Development (OECD), which has been leading the talks, said the deal would cover 90% of the global economy.

However, with the ink barely dry on the deal, some countries were already raising concerns about its implementation. The Swiss Finance Ministry demanded in a statement that the interests of small economies be taken into account, and said that the 2023 implementation date was impossible.

Poland, which has concerns over the impact on foreign investors, said it would keep working on the deal.

Central to the agreement is a minimum corporate tax rate of 15% and allowing governments to tax a greater share of foreign multinationals’ profits.

Background

Organization for Economic Co-operation and Development (OECD) recently released a research analysis- The Long View: Scenarios for the World Economy to 2060.

• World real GDP growth will decline from 3.5% in 2018 to 2% in 2060.
• By 2060, India, China, and Indonesia combined will represent almost half of the world’s economic output.

Findings of Research

• World growth slows and weight of emerging economies rises
  • By 2060, the global real GDP growth rate will decrease. The share of Emerging market in Global GDP will increase.
  • China’s share of world output will be at its peak during the 2030s at about 27% and will decline thereafter, while India’s share in Global GDP will keep increasing.
  • By the mid-2030s, India’s contribution to global GDP will be the largest and will surpass that of China.
  • Causes for the decline in global GDP: Decline in working age population due to population ageing will decrease employment rate as older people are less likely to be employed than middle-aged people.
  • Prospects for Emerging Market Economies 
    • The world’s economic center of gravity continues to shift towards Asia
      • The center of gravity of world economic activity will move from North America and Europe towards Asia.
      • Therefore, countries that are geographically closer to large markets like India and China will become less economically remote and will benefit from easier access to their markets.
    • Living standards continue to improve
      • Living standards in all countries will continue to improve with rising GDP and will gradually move towards that of developed countries.
      • But living standard in BRICS and low-income countries will remain below and almost half to that of the USA in 2060.
    • Institutional reforms would speed the convergence of emerging market economies
      • The BRICS countries have scope for improvement in the quality of governance and level of educational attainment.
      • If BRICS improve quality of institutions and raise educational attainment, then living standard in BRICS will be 30% to 50% higher in 2060 than now.
      • Institutions are important because they can create positive incentives for business investment, technology adoption, and human capital accumulation.
      • Institutions may encourage people to work towards the growth-enhancing environment, or they may lead to corruption and personal gain at the expense of the rest of society.
      • Education will enhance the knowledge and skills in individuals and also will encourage:
        • participation in groups.
        • opens doors to job opportunities.
        • makes individuals better aware of their rights.
        • improves health.
        • reduces poverty.

• Organisation for Economic Cooperation and Development
  • The OECD is an intergovernmental economic organisation, founded to stimulate economic progress and world trade.
    Most OECD members are high-income economies with a very high Human Development Index (HDI) and are regarded as developed countries.
  • Founded: 1961.
  • Headquarters: Paris, France.
  • Total Members: 36.
  • India is not a member, but a key economic partner.
  • Reports and Indices by OECD
    • Government at a Glance 2017 report.
    • International Migration Outlook.
    • OECD Better Life Index.
• Emerging Market Economy: An emerging market economy is a nation’s economy that is progressing toward becoming an advanced economy.
• BRICS is an international grouping consisting of Brazil, Russia, India, China and South Africa.

2.NRC backs Linear No-Threshold model for radiation safety

This decision of U.S. Nuclear Regulatory Commission was awaited by specialists

Now it is official. The U.S. Nuclear Regulatory Commission (NRC) decisively upheld the Linear No-Threshold model to prescribe radiation safety standards, ending the protracted controversy on the topic. Radiation protection specialists worldwide were eagerly awaiting the NRC’s decision.

Over six years ago, during February 2015, Dr. Carol S. Marcus, Mr. Mark L. Miller, Certified Health Physicist, and Dr. Mohan Doss, and others, through three petitions requested the NRC, “to amend its regulations based on what they assert is new science and evidence that contradicts the linear no-threshold (LNT) dose-effect model that serves as the basis for the NRC’s radiation protection regulations.”

The model

The LNT model states that biological effects such as cancer and hereditary effects due to exposure to ionising radiation increase as a linear function of dose, without threshold.

The petitioners support “radiation hormesis,” a concept that posits that low doses of ionising radiation protect against the deleterious effects of high doses of radiation and result in beneficial effects to humans.

The NRC denied the three petitions because they failed to present an adequate basis supporting the request to discontinue use of the LNT model. “The NRC has determined that the LNT model continues to provide a sound regulatory basis for minimizing the risk of unnecessary radiation exposure to both members of the public and radiation workers. Therefore, the NRC will maintain the current dose limit requirements,” the NRC declared recently.

Petitioners’ proposed substantial increase in dose limits to workers; raise the public dose limits to be the same as the worker doses; end differential doses to pregnant women, embryos and fetuses, and children less than 18 years of age; remove the As Low As Is Reasonably Achievable (ALARA) principle entirely from the regulations because they claim that ‘‘it makes no sense to decrease radiation doses that are not only harmless but may be hormetic’’.

No proof of a threshold

“Convincing evidence has not yet demonstrated the existence of a threshold below which there would be no stochastic effects from exposure to low radiation doses. As such, the NRC’s view is that the LNT model continues to provide a sound basis for a conservative radiation protection regulatory framework that protects both the public and occupational workers. Despite the various studies cited by the petitioners, uncertainty and lack of consensus persist in the scientific community about the health effects of low doses of radiation.” the NRC, asserted.

The LNT model helps the agencies to regulate radiation exposures to diverse categories of licensees, from commercial nuclear power plants to individual industrial radiographers and nuclear medical practices.

The NRC noted that although there are studies and other scholarly papers that support the petitioners’ assertions, there are also studies and findings that support the continued use of the LNT model, including those by national and international authoritative scientific advisory bodies.

Endorsed by authority

Authoritative scientific advisory bodies such as the U.S. National Academy of Sciences (NAS), the National Council for Radiation Protection and Measurements (NCRP), the International Commission on Radiological Protection (ICRP) and the International Atomic Energy Agency (IAEA), that have a specialty in the area of radiation protection support the continued use of the LNT model. The National Cancer Institute (NCI), the National Institute of Occupational safety and Health (NIOSH) and the Environmental Protection Agency (EPA) also endorse the use of LNT model.

The NRC gave due weight to NCRP Commentary No. 27: ‘‘Implications of Recent Epidemiologic Studies for the Linear-Non-threshold Model and Radiation Protection,’’ released in April 2018. The commentary assesses currently available epidemiological evidence and concludes that the LNT model should continue to be utilised for radiation protection purposes.

The NRC received over 3,200 comment submissions, with 635 of those being unique, including submissions from certified health physicists, nuclear medicine professionals, scientific associations, federal agencies and concerned citizens. There were 100 unique comment submissions that agreed with the petitioners. The NRC responded to all questions. Its procedures to arrive at its decision are a model for other regulators to emulate. (Details available at The Federal Register: The Daily Journal of the United States Government, proposed rule – Linear No-Threshold Model and Standards for Protection Against Radiation.)

3.India may need to rescind digital tax

As part of the global minimum tax accord it has agreed to, country must forswear such levies

India may have to withdraw digital services tax or the equalisation levy and give a commitment not to introduce such measures in the future if the global minimum tax deal comes through.

In a major reform of the international tax system, 136 countries, including India, have agreed to an overhaul of global tax norms to ensure that multinationals pay taxes wherever they operate and at a minimum 15% rate.

However, the deal requires countries to remove all digital services tax and other similar measures and to commit not to introduce such measures in the future, the Organisation of Economic Cooperation and Development (OECD) said in its implementation plan on Friday.

“No newly enacted digital services taxes or other relevant similar measures will be imposed on any company from October 8 and until the earlier of December 31, 2023, or the coming into force of the MLC (multilateral convention),” the OECD said.

The proposed two-pillar solution of the global tax deal consists of two components — Pillar One which is about reallocation of additional share of profit to the market jurisdictions and Pillar Two consisting of minimum tax subject to tax rules.

Finance Minister Nirmala Sitharaman had earlier this week said that India was “very close” to arriving at the specifics of the two-pillar taxation proposition at the G-20 and was in the last stage of finalising the details.

The Finance Ministers of G-20 countries are scheduled to meet on October 13 in Washington and finalise it.

“As a significant move, the OECD has sought for an immediate and upfront withdrawal of unilateral digital services tax and a commitment not to introduce such measures in the future,” Nangia Andersen Partner Sandeep Jhunjhunwala said commenting on the OECD’s latest statement.

The modality for the removal of existing digital services taxes and other similar measures needs to be appropriately coordinated, Mr. Jhunjhunwala observed.

Timeline deferred

“Pillar Two which was initially proposed to be brought into effect from 2023 has now been deferred to 2024,” he added.

Shardul Amarchand Mangaldas & Co. Partner Gouri Puri said a consensus was key to securing a more stable tax regime for multinationals and governments.

“While the fine print is awaited, India is balancing its interests both as an importer and an exporter of capital, goods and services. The deal will prevent a race to the bottom among countries,” Mr. Puri added.

What is G20?

• The G20 is an informal group of 19 countries and the European Union, with representatives of the International Monetary Fund and the World Bank.
• The G20 membership comprises a mix of the world’s largest advanced and emerging economies, representing about two-thirds of the world’s population, 85% of global gross domestic product, 80% of global investment and over 75% of global trade.

Origin

• 1997-1999 ASIAN Financial Crisis: This was a ministerial-level forum which emerged after G7 invited both developed and developing economies. The finance ministers and central bank governors began meeting in 1999.
• Amid 2008 Financial Crisis the world saw the need for a new consensus building at the highest political level. It was decided that the G20 leaders would begin meeting once annually.
• To help prepare these summits, the G20 finance ministers and central bank governors continue to meet on their own twice a year. They meet at the same time as the International Monetary Fund and The World Bank.

How G20 Works?

• The work of G20 is divided into two tracks:
  • The finance track comprises all meetings with G20 finance ministers and central bank governors and their deputies. Meeting several times throughout the year they focus on monetary and fiscal issues, financial regulations, etc.
  • The Sherpa track focuses on broader issues such as political engagement, anti-corruption, development, energy, etc.
    • Each G20 country is represented by its Sherpa; who plans, guides, implements, etc. on behalf of the leader of their respective country. (Indian Sherpa, at the G20 in Argentina, 2018 was Shri Shaktikanta Das)

G20 Members

• The members of the G20 are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States, and the European Union.
• Spain as a permanent, non-member invitee, also attends leader summits.

Structure and Functioning of G20

• The G20 Presidency rotates annually according to a system that ensures a regional balance over time.
• For the selection of presidency, the 19 countries are divided into 5 groups, each having no more than 4 countries. The presidency rotates between each group. Every year the G20 selects a country from another group to be president.
  India is in Group 2 which also has Russia, South Africa, and Turkey.
• The G20 does not have a permanent secretariat or Headquarters. Instead, the G20 president is responsible for bringing together the G20 agenda in consultation with other members and in response to developments in the global economy.
• TROIKA: Every year when a new country takes on the presidency (in this case Argentina 2018), it works hand in hand with the previous presidency (Germany, 2017) and the next presidency (Japan, 2019) and this is collectively known as TROIKA. This ensures continuity and consistency of the group’s agenda.

Cooperation

• In Toronto in 2010, leaders declared it to be the premier forum for global economic co-operation.
• The work of G20 members is supported by several international organisations that provide policy advice. These organisations include:
  • The Financial Stability Board (FSB). The FSB, which was established by G20 leaders following the onset of the global financial crisis,
  • The International Labour Organization (ILO).
  • The International Monetary Fund (IMF).
  • The Organisation for Economic Co-operation and Development (OECD)
  • United Nations (UN)
  • World Bank
  • The World Trade Organization (WTO)
• The G20 also regularly engages with non-government sectors. Engagement groups from business (B20), civil society (C20), labour (L20), think tanks (T20) and youth (Y20) are holding major events during the year, the outcomes of which will contribute to the deliberations of G20 leaders.

Issues Addressed by G20

• The G20 focuses on a broad agenda of issues of global importance, although, issues pertaining to the global economy dominate the agenda, additional items have become more important in recent years, like:
  • Financial markets
  • Tax and fiscal policy
  • Trade
  • Agriculture
  • Employment
  • Energy
  • Fight against corruption
  • Advancement of women in job market
  • 2030 agenda for Sustainable development
  • Climate Change
  • Global Health
  • Anti-terrorism
  • Inclusive entrepreneurship

India’s Priorities in G20 Summits

• Checking tax evasion to fight corruption
• Choking terror funds
• Cutting the cost of remittances
• Market access for key drugs
• Reforms in the World Trade Organisation to improve its functioning
• “Full implementation” of the Paris Agreement

Achievements

• Flexible: With only 20 members, the G20 is agile enough to make prompt decisions and to adapt to new challenges.
• Inclusive: The inclusion every year of invited countries, international organizations and civil society organization through engagement groups allow for a broader and more comprehensive perspective when assessing global challenges and building consensus to address them.
• Coordinated action: The G-20 has also played a crucial role in strengthening the international financial regulatory system, including better coordination across countries.
• Facilitated an increase in lending from multilateral development banks of US$235 billion at a time when private sector sources of finance were diminished.
• Major achievements of the G20 include quick deployment of emergency funding during the 2008 global financial crisis.
• It also works for reforms in international financial institutions by improving oversight of national financial institutions. Such as G20 driven reforms to the international tax system, through the G20/OECD Base Erosion and Profit Shifting (BEPS) project and implementation of tax transparency standards.
• G20 played a critical role in the ratification of the Trade Facilitation Agreement, with the WTO estimating it could contribute up to somewhere between 5.4 and 8.7% to global GDP by 2030 if the agreement were fully implemented.
• Better Communication: G20 bring World’s top developed and developing countries together to bring consensus and reasoning into decision making through discussion.

Challenges

• No Enforcement mechanism: The G20’s toolkit ranges from simple exchanges of information and best practices to agreeing common, measurable targets, to coordinated action. None of this is achieved without consensus, nor is it enforceable, except for the incentive of peer review and public accountability.
• Not legally binding: the decisions are based on discussions and consensus which culminates in the form of declarations. These declarations are not legally binding. It’s just an advisory or consultative group of 20 members.