Global Minimum Tax

News: India has joining the OECD-G20 framework for a global minimum tax.

About the deal:

  • The proposed solution consists of two components:
    • Pillar One is about the reallocation of an additional share of profit to the market jurisdictions and
    • Pillar Two consists of minimum tax and subject to tax rules
  • Some significant issues including share of profit allocation and scope of subject to tax rules, remain open and need to be addressed.
  • Further, the technical details of the proposal will be worked out in the coming months and a consensus agreement is expected by October.

India’s decision:

  • The principles underlying the solution vindicates India’s stand for a greater share of profits for the markets, consideration of demand-side factors in profit allocation. There is a need to seriously address the issue of cross border profit shifting and need for the subject to tax rules to stop treaty shopping.
  • India is in favour of a consensus solution that is simple to implement and simple to comply with.
  • At the same time, the solution should result in the allocation of meaningful and sustainable revenue to market jurisdictions, particularly for developing and emerging economies.

Base Erosion and Profit Shifting (BEPS):

  • BEPS refers to corporate tax planning strategies used by multinationals to “shift” profits from higher-tax jurisdictions to lower-tax jurisdictions.
  • It thus “erodes” the “tax base” of the higher-tax jurisdictions. Corporate tax havens offer BEPS tools to “shift” profits to the haven, and additional BEPS tools to avoid paying taxes within the haven.
  • It is alleged that BEPS is associated mostly with American technology and life science multinationals.