India calls on G-20 nations for early solution on taxing digital companies

Highlights need for the G20 to keep a close watch on global current account imbalances

India has made a strong case for adoption of “significant economic presence” concept for taxing global digital companies and close cooperation among the G20 member nations to deal with fugitive economic offenders who flee their countries to escape consequences of law.

During her interactions at the two-day G20 meeting of finance ministers and central bank governors at Fukuoka in Japan, Finance Minister  Nirmala Sitharaman also pitched for development of a common defensive toolkit of measures to deal with non-compliant tax jurisdictions that refuse to share tax related information. 

Besides Sitharaman, Finance Secretary Subhash Chandra Garg and Reserve Bank Deputy Governor Viral Acharya participated at the ministerial and central bank governors’ meeting of the G20, which is a grouping of developed and developing nations.

A finance ministry statement said that during the G20 meeting, Sitharaman noted the urgency to fix the issue of determining right nexus and profit allocation solution for taxing the profits made by digital economy companies. “FM noted that the work on tax challenges arising from the digitalization of economy is entering a critical phase with an update to the G20, due next year. In this respect, the FM strongly supported the potential solution based on the concept of ‘significant economic presence’ of businesses taking into account the evidence of their purposeful and sustained interaction with the economy of a country,” the statement said.

Commerce Minister Piyush Goyal with European Commissioner for Trade Anna Cecilia Malmström

Sitharaman expressed confidence that a consensus-based global solution, which should also be equitable and simple, would be reached by 2020. She said with almost 90 jurisdictions now adopting the automatic exchange of financial account information (AEOI), it would ensure that tax evaders could no more hide their offshore financial accounts from the tax administration.

She urged the G20/Global Forum to further expand the network of automatic exchanges by identifying jurisdictions, including developing countries and financial centres that are relevant but have not yet committed to any timeline. “Appropriate action needs to be taken against non-compliant jurisdictions. In this respect she called upon the international community to agree on a toolkit of defensive measures, which can be taken against such non-compliant jurisdictions,” the statement said.

At the Ministerial Symposium on International Taxation, Sitharaman raised the need for cooperation on dealing with fugitive economic offenders. “FM urged that closer collaboration and coordinated action were required to bring such offenders to face law,” the statement said. 

Sitharaman also highlighted the need for the G20 to keep a close watch on global current account imbalances to ensure that they do not result in excessive global volatility and tensions. “The global imbalances left a detrimental impact on the growth of emerging markets. Unilateral actions taken by some advanced economies adversely affect the exports and the inward flow of investments in these economies,” the statement said.