At the G20 Finance Ministers and Central Bank Governors’ Meeting at the G20 Summit, Finance Minister Nirmala Sitharaman called for adoption of the “significant economic presence” concept to tax global digital companies, cohesive action against fugitive economic offenders, and improved global financial information-sharing mechanisms to inhibit tax evaders (read what she said here). Finance Secretary and Economic Affairs Secretary Subhash C Garg, and the Deputy Governor of RBI Dr Viral Acharya accompanied the finance minister to Fukuoka, Japan, for the summit on June 8 and 9.

Here are the key takeaways from Sitharaman’s speech:

Taxing digital economy companies

  • Urgent need to fix the issue of determining right nexus and profit allocation solution for taxing profits made by digital economy companies
  • Supported the adoption of “significant economic presence” concept for taxing global digital companies, which  considers the “evidence of their purposeful and sustained interaction with the economy of a country” irrespective of their physical presence in the company, a concept that India had introduced and implemented through the Finance Act, 2018

Cohesive action against fugitive economic offenders

  • Close cooperation, collaboration and coordinated action among G20 member nations to deal with fugitive economic offenders; echoes the nine-point agenda against fugitive economic offenders that Prime Minister Narendra Modi presented in Buenos Aires last year at the 13th G20 summit, where India had made a similar case.
  • Cited India’s Fugitive Economic Offenders Act, 2018 that provides for denial of access to courts until the fugitive returns to the country, for confiscation of their properties and selling them off. Ironically, while Sitharaman was citing this act in Japan, India’s most well-known economic fugitive Vijay Mallya was watching the India vs Australia World Cup match at The Oval in London.

Improve global financial information sharing mechanisms

  • Welcomed commencement of AEOI (automatic exchange of financial information) on a global basis with almost 90 jurisdictions exchanging information in 2018; this ensures that tax evaders can no longer hide their offshore financial information from their tax administration, she said.
  • Called for the expansion of the AEOI framework by identifying regions that haven’t yet committed to a timeline.
  • Advocated for the development of a common defensive toolkit of measures to deal with non-compliant tax jurisdictions or nations which refuse to share tax-related information.

International market

  • Highlighted need for G20 to watch global current account imbalances to potentially prevent excessive global volatility and tensions.
  • Pointed to a link between global imbalances, accumulation of cash reserves by large companies, and their consequent reluctance to invest in emerging markets, which adversely affected exports and investments in emerging economies; warned against concentration of market power.
  • Urged G20 to study measures that would benefit both oil exporting and importing countries.

Infrastructure

  • Need to invest in cost-effective and disaster-resilient infrastructure.
  • Identify constraints to infrastructural resources in developing world, and solutions for overcoming them.

G20 critical of tax loops for Big Tech, stays mum on US-China trade war

In addition, Reuters reported that the G20 finance leaders had “agreed to compile common rules by next year to close loopholes used by technology giants such as Facebook and Google to reduce their corporate taxes”. The new rules would mean higher tax burdens for large multinational firms, and would make it harder for countries offering low corporate tax rates to attract FDI. This comes at a time when big technology firms, largely American, pay very low taxes in Europe. Britain and France have been at the forefront, demanding higher taxation rates for these companies. The US, on the other hand, is understandably wary of this agreement as it will primarily impact American companies. The communique also pledged “to increase debt transparency on the part of borrowers and creditors”.

In a significant move, the Straits Times reported that a proposed clause to “recognise the pressing need to resolve trade tension” was dropped from a draft at the insistence of United States. Japan Today reported that despite no direct reference to the trade war, the participating leaders “indicated it was the No. 1 concern”. This demonstrates the US’s need to avoid obstacles as it increases tariffs on Chinese goods. The statement also had no references to how the US-China trade war was hurting global growth.

French Finance Minister Bruno Le Maire and Managing Director of the International Monetary Fund (IMF) both bluntly urged US and China to end their bilateral tensions that were affecting global growth, Japan Today reported.

RTE reported that US Treasury Secretary Steve Mnuchin said that US President Donald Trump and Chinese President Xi Jinping would meet at the G20 summit in Osaka on 28/29 June.