Taxation

Choose the Correct Answer

Correct Answer : Option c

Explanation
The "Top-up Tax" is a central element of the Global Minimum Corporate Tax (GMCT), a global tax reform initiative spearheaded by the OECD/G20 Inclusive Framework. It refers to the additional tax imposed on the profits of a multinational enterprise (MNE) when the effective tax rate (ETR) paid in a specific country falls below the agreed global minimum rate of 15%.
Under this mechanism, an MNE calculates its ETR separately for each country in which it operates. If the ETR in any jurisdiction is less than 15%, the home country of the MNE is allowed to levy a top-up tax to make up the shortfall.
For example, if an MNE pays only 10% tax in Country A, its home country can impose a top-up tax of 5%, thereby ensuring that the total tax paid on those profits aligns with the 15% global minimum.

Statement-I is correct: An MNE operates in multiple countries, paying different corporate tax rates in each.Suppose the MNE pays only 5% corporate tax in a low-tax country (example Cayman Islands).The home country of the MNE (example India) or another rightful jurisdiction can apply a top-up tax of 10% (to bring the total to 15%).This discourages shifting profits to tax havens and ensures fair tax collection.

Statement-II is not correct: The Top-up Tax is not a rebate.It is an extra tax imposed only when an MNE pays less than 15% in a particular country.If an MNE is already paying above 15%, no extra tax is charged, but no rebate is given either.