The recent G20 summit in New Delhi yielded a comprehensive joint declaration addressing various critical issues such as digital public infrastructure, gender equality, combatting money laundering, and implementing financial sector reforms to foster robust, sustainable, equitable, and inclusive global growth. A standout feature of the collective statement is the G20’s strong recommendation for the adoption of the Crypto-Asset Reporting Framework (CARF).
When the G20 leaders convened to deliberate on socio-economic and geopolitical policies, their discussions about taxation piqued everyone’s interest. In their collective statement, G20 leaders committed to further collaboration to establish a globally equitable, sustainable, and contemporary international tax framework adapted to the demands of the 21st century.
The G20 has reiterated its dedication to the swift execution of the ‘Two-Pillar’ international tax package. ‘Pillar One’ allocates a portion of taxing authority to market-based jurisdictions, departing from residential ones. For instance, under ‘Pillar One,’ India will have the ability to levy income tax on sales generated within its market by prominent e-commerce digital platforms like Amazon, Google, Facebook, and ChatGPT. These companies often assert their exemption from Indian tax obligations due to the absence of a permanent establishment in the country. However, unilateral measures such as the equalization levy will need to be withdrawn once ‘Pillar One’ is implemented.
Prominent US-based multinational corporations (MNCs) like Apple, Amazon, Google, and Facebook have consistently used intricate networks of international subsidiaries established in low-tax or tax haven jurisdictions. They employ various strategies to minimize tax liabilities by shifting profits from higher-tax regions to lower-tax areas or tax havens. ‘Pillar Two’ introduces a global minimum corporate tax rate of 15% for such major MNCs. Any deficit between this global minimum tax rate and the tax rate in the low-tax jurisdiction must be paid as a top-up tax by these MNCs.
A significant highlight of the joint declaration is the G20’s call for the expeditious implementation of the Crypto-Asset Reporting Framework (CARF) and revisions to the ‘Common Reporting Standard’ (CRS).
CARF, developed in response to the rapid growth of the crypto-asset market under the G20’s mandate, requires standardized reporting of tax information on crypto asset transactions. This information will be automatically exchanged annually with the tax jurisdictions of taxpayers’ residence.
In India’s case, crypto transactions conducted by Indian residents on foreign-based crypto exchanges will now fall within the scope of automatic information exchange protocols under CARF, making it impossible to conceal such crypto transactions.
Similarly, under the amended CRS, which enhances tax transparency regarding foreign financial accounts, it will become exceedingly difficult for Indian residents to withhold information about their foreign bank accounts and offshore asset holdings from tax authorities.
The G20 has also acknowledged reports from the OECD (Organisation for Economic Co-operation and Development) on improving international tax transparency for real estate and the Global Forum Report on facilitating the use of tax treaty-exchanged information for non-tax purposes. Currently, the confidentiality laws of tax havens and low-tax jurisdictions often impede tax authorities, and information acquired through tax treaty agreements concerning undisclosed foreign assets or real estate holdings. At the behest of the Indian G20 presidency, efforts are underway to streamline the broader use of treaty-exchanged information among interested jurisdictions.
Following this G20 summit, failing to disclose any crypto transactions, foreign bank accounts, or overseas real estate holdings to Indian tax authorities may prove to be a costly mistake, subject to substantial regulatory fines and penalties. With India providing leadership on financial frameworks on cryptocurrencies and other assets, how many G20 jurisdictions will implement the changes as quickly as the creation of new technologies and financial assets requires?