Global Minimum Corporate Tax Rate: The CCI ‘Googly’ Dodged For Years and How It Can Help Countries

Rishi Sunak, the Indian-born chief of the British Treasury, announced that a historic breakthrough has been made in bringing fairness and equality to international taxation.

Nine top cricket nations competed for two years in the toughest form of international cricket for the chance to win the first-ever World Trials Championship, the 2021 flagship event of the International Cricket Council . India started their campaign with seven straight wins and secured their place in the final after giving England a full beating in Ahmedabad. The final against New Zealand is set to be played at the Ageas Bowl, home of Hampshire County Cricket Club. It’s quite intriguing that Hampshire’s ties to India are as old as the game of cricket itself. While the first definitive reference to cricket dates back to 1597, Hampshire became one of the East India Company’s greatest benefactors from the early 1600s. Employment for its workforce, demand for its timber , demands for its ships, markets for its investors and consumers for its farmers. India has given Hampshire what it takes to build a modern city. Historically and culturally speaking, it wouldn’t be a stretch to consider the Ageas Bowl, the home ground of the Indian team. After all, who fills the stands?

Incidentally, a widely publicized meeting of G7 finance ministers took place in the first week of June. Rishi Sunak, the Indian-born chief of the British Treasury, announced that a historic breakthrough has been made in bringing fairness and equality to international taxation. The Communiqué of the meeting committed the G7 to assign a new tax right to market economies (countries with huge markets like India). He also committed the G7 to the ideal of achieving a minimum overall corporate tax rate of 15%, essentially the beginning of the end of tax havens. But what links the G7 meeting to the long-awaited ICC final? Precisely taxes and equity.

The biggest revenue generating item of any cricket event is the broadcast rights. ICC owns broadcast rights to the Aegas Bowl final. Although we are not sure of the price set for the broadcast of the final, the ICC has substantial revenues that it generates from cricket events around the world. 2019 statement of comprehensive income fixed ICC’s annual net income at $ 392 million, or nearly Rs 3,000 crore. This would amount to around Rs 650 Crores in tax if the company was operating in a country where cricket is actually played. But the British Virgin Islands are not really famous for their cricket. Why does the ICC operate from there?

The International Cricket Council is registered as a trading company in the British Virgin Islands (BVI). The law applicable to such a company is the BVI Business Companies Act. Since the income-generating activities of the International Cricket Council are outside the BVI, the ICC is exempt from all provisions of the Income Tax Act. (including dividends, interest, rents, royalties). Capital gains realized on most transactions by persons who do not reside in BVI are also exempt. No inheritance, inheritance or gift taxes payable by non-BVI residents on most financial assets. No stamp duty is payable to BVI on a transfer of shares in an international BVI trading company. The ICC is, for the most part, exempt from all tax on its overall income in the British Virgin Islands.

Consider the subsidiaries of ICC. The organizational structure of the ICC is shown below along with the functions performed by each entity. As can be seen, quite understandably, all entities involved in exploiting business interests and generating income are located in zero tax jurisdictions / regimes. The entities in Dubai are located in free zones, identified by the “FZ” in the name. Free zones are essentially special geographic enclaves that offer a non-tax holiday for a period of 10/15 years.

Dubai has historically only taxed oil and gas companies and foreign banks. There is also no withholding tax or capital gains tax in Dubai. Mauritius is also known to have managed a scheme under the nomenclature of the International Business Company or Global Business Company scheme in which entities generating income only from outside Mauritius benefit from significant tax exemptions / exemptions. ICC Americas, registered in the USA, clearly does not generate revenue and therefore ICC does not really care where it is located.

On an income of $ 392 million, essentially, the ICC pays no tax. In addition to being located in tax havens, the ICC also lobbies in the countries where the events take place to obtain tax exemptions on the income generated by the events. However, it is not entirely clear why the ICC has an aversion to taxes. Taxes build a nation. Taxes create an audience. Taxes build a sport. Taxes are necessary for the ICC to have a good number of viewers.

It is precisely these tax havens like the BVI, the United Arab Emirates and Mauritius that Rishi Sunak promised to attack during the G7 meeting. The UK’s satellite network of Overseas Territories and Dependencies comprising the BVI, Cayman Islands, Bermuda and Jersey is often considered to be at the top of the list of tax havens for business. So, it is not clear how the dichotomy will work. Will the UK take any real meaningful action to cut the very arteries of its financial muscle that dictate conditions across the financial world today? In this context, the announcement of the British Chancellor of the Exchequer is intriguing. As much as the connection with India from Hampshire.

By a conservative estimate, tax havens deprive countries of taxes amounting to 30 Lakh Crores each year. The countries most affected are the market economies, those born from the same colonies that were colonized about half a century ago. Tax havens silently and discreetly rob nations of their wealth.

With a low threshold of 15% minimum tax rate and possible exemptions for individuals, trusts and investment funds, the G7 decision, while a positive step, is far from changing the situation. However, it remains to be seen whether the tax haven scam will end.

(Subhash Jangala is Co-Director (OSD), Advertising Division, Directorate General of Administration and Taxpayer Services, CBDT. Opinions expressed are those of the author and do not represent those of the Government of India or Financial Express Online.)

Do you know what is cash reserve ratio (CRR), budget bill, fiscal policy in India, expenditure budget, tariffs? FE Knowledge Desk explains each of these and in more detail on Financial Express Explained. Also get live BSE / NSE stock quotes, latest mutual fund net asset value, top equity funds, top winners, top losers on Financial Express. Don’t forget to try our free income tax calculator.

Financial Express is now on Telegram. Click here to join our channel and stay up to date with the latest news and updates from Biz.

About Vicki Davis

Check Also

The 11 best locations in the UK to buy a second home – and they’re all under £350,000

Those looking for the bustle, amenities and culture close at hand, with the coastal and …

Leave a Reply

Your email address will not be published.