Splainer

Monday, November 1 2021


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The platforms have become a dumping ground for redundant shows. We either have shows that don't deserve to be seen or sequels that have nothing more to say...It’s become a dhanda for big production houses and actors who are now so-called stars on the OTT platform. Major film producers in Bollywood have cut lucrative deals with all the big players in the OTT field. Producers get huge amounts to create unlimited content. Quantity has killed quality.

That’s actor Nawazuddin Siddiqui announcing that he will no longer make films for streaming platforms—which he says are replicating the same star system as big screen productions. 


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Big Story

A minimum tax for global corporate giants

The TLDR: The Group of 20—who represent the largest economies in the world—agreed to impose a minimum corporate tax on global companies. The reason: To put an end to havens that allow them to duck paying higher taxes. The move will reshape how companies like Apple, Facebook etc. do business, but will it work—and for whom? 

 

What happened here?

Over the weekend, the G20 countries signed off on a global minimum tax of 15% on big multinational businesses. They essentially endorsed an agreement signed at a meeting of the Organization for Economic Cooperation and Development by 136 countries in October. President Biden underlined the significance of the decision:

 

“Here at the G20, leaders representing 80% of the world’s GDP—allies and competitors alike—made clear their support for a strong global minimum tax. This is more than just a tax deal—it’s diplomacy reshaping our global economy and delivering for our people.”

 

Why are they doing this?

One: Because multinational giants have been stashing their profits in low-tax havens to avoid paying up. The problem is even bigger when there are no fixed assets—like factories etc.—involved. These companies can easily move their money around to duck high rates. For example: Apple could make huge profits by selling its products in the US but attributes those profits to a subsidiary in Ireland—where the tax rate is only 12.5%.

 

Data point to note: In 2017, roughly 40% of profits earned by the world’s multinational firms—or more than $700 billion—was stashed in tax havens. 

 

Two: The current system forces governments into a race to the rock-bottom—where they compete to offer the lowest tax rate to attract big business. The reason: it also brings big benefits for the handful willing and able to slash taxes. Example: More than $100 billion in multinational profits was shifted to Ireland alone in 2015. But this becomes a zero sum game where companies play governments off each other to gain the sweetest benefits.

 

Data point to note: The average corporate tax rate globally has fallen by more than half over the past three decades, from 49% in 1985 to 24% in 2018.

 

Three: The loss of tax revenue drains governments of funding in health care and other key areas—and often forces them to hike up sales taxes which are borne by customers, i.e. people like us. 

 

Four: Multinationals can make massive profits in foreign countries and yet pay no taxes there—because they are taxed in the jurisdiction where they declare profits, not where they do business. This is especially true for tech giants like Facebook, Google etc. India, for example, imposes a digital tax of 2% on these companies to compensate for the loss of tax revenue.

 

Data point to note: By 2016, over half of all US corporate profits were booked in seven tax havens: Bermuda, the Cayman Islands, Ireland, Luxembourg, the Netherlands, Singapore and Switzerland.

 

The big benefit: The OECD estimates that the minimum tax will result in $150 billion in additional global tax revenue every year. Taxing rights on more than $125 billion of profit will also shift to countries where profits are earned—from tax havens where they are currently declared.

 

Ok, so how will this work?

The new tax rules apply to multinational companies with annual revenues of more than $864 billion per year. So these are corporate giants, not startups or mid-sized companies.

 

Imposing a ‘top up’ rate: Companies will have to pay 15% on their profits in countries irrespective of where they declare their profits. So going back to the Apple example, say the company declares its profits in a tax haven where the rate is only 10%. Then the US—its home country where its headquarters are located—can ‘top up’ that rate by imposing an additional 5% tax on those profits. Tax havens would become pointless, since taxes dodged in the haven will still be collected at home.

 

PS: This will also hold if the reverse is true. If the company reacts by shifting its headquarters to a tax haven, it will still have to pay a ’top up tax’ in the country where its subsidiary is located. 

 

Closing the digital loophole: Technology companies do a huge share of their business in foreign markets, but often don’t pay taxes there. The new rules allow countries—where a business’s customers are located—to tax 25% of its “residual profits.” These are defined as profits in excess of 10% of its revenue. The aim here is to ensure benefits of the minimum tax don’t flow only to countries like the US—where most tech companies are headquartered. In turn, countries like India will stop imposing a digital tax on tech companies.

 

So this is a good thing?

 
Headlines that matter

Covid killed a flu strain

One of four strains of influenza has likely gone extinct due to limited human movement, vaccine coverage and quarantine measures. The influenza B/Yamagata virus has not been detected across the world since April 2020. Also this: It’s possible that a large part of the human population has already built up immunity to this lineage—making it easier to drive it to extinction. (Cosmos)


Pet dogs can identify new words

New research shows that pet dogs can identify new words just like human babies:

 

“Imagine the infant brain is confronted with the phrase ‘scary dragon’ for the first time. It could decide that there are three words: sca—rydra—gon. Or it can decide there are two: scary and dragon. Roughly speaking, the brain recognises that it is highly probable that the ‘scar’ and ‘y’ sounds form one unit, and that so do ‘dra’ and ‘gon’. Babies spontaneously do this at about eight months old, despite being oblivious to what the words scary and dragon mean.”


And dogs are able to do something similar using “exactly the kind of complex statistics human infants use to extract words from continuous speech.” Hmm, and yet you can yell ‘bad boy’ a million times to very little effect. (Times UK)

 

A 1000-year-old gold mask

Ok, this isn’t exactly an art thing, but still in the general vicinity. Back in the 1990s, discovered a 1000-year-old gold mask in Peru that was coloured red—and assumed the pigment was cinnabar. What was baffling: How the paint had remained on the mask for all these years. A DNA analysis has now offered an answer: The pigment is human blood. And the reason this is not surprising: The Sicán people performed human sacrifices using a method of cutting into the neck and chest designed to maximize bleeding. Yikes. See it below. (Smithsonian Magazine)

 

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In today’s edition

Sanity Break

  • A Diwali ad for Amazon (yes, Amazon!) that made us totally tear up

 

Smart & Curious

  • The afterlife of the male model
  • Is it ever wise to mix your different friend circles?
  • The booming business of climate change
  • ‘Emotional sobriety’—or learning how not to always wallow in your feelings
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