India has joined the Organisation for Economic Co-operation and Development (OECD) and G20’s Inclusive Framework tax deal of global corporate tax. According to a Finance Ministry, the members OECD and G20 countries adopted a high-level statement containing an outline of a consensus solution to address the tax challenges arising from the digitalisation of the economy.
The proposed solution consists of two components- reallocation of additional share of profit to the market jurisdictions and minimum tax subject to tax rules. However, the technical details of the proposal will be worked out in the coming months and a consensus agreement is expected by this year october. Also, some significant issues, including share of profit allocation and scope of subject to tax rules, remain open and are yet to be addressed.
Background: Last month, a group of seven developed (G-7) countries, comprising the US, UK, Germany, France, Canada, Italy and Japan, had reached a landmark deal on taxing multinational companies as per which the minimum global tax rate would be at least 15 per cent.
They also agreed to put in place measures to ensure businesses pay taxes in the countries where they operate, a move aimed at plugging loopholes in cross-border taxation. Following this, the global corporate tax was proposed by the United States as Global Minimum Tax (GMT).
On July 2, 2021 the tax deal was adopted in the OECD and G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS). BEPS refers to tax-avoiding strategies used by big multinational companies that exploit the gaps and mismatches in tax rules across the globe.
Around 130 countries, representing more than 90 percent of global GDP, adopted the global corporate tax rate of at least 15 percent. The countries also agreed on a fairer distribution of ‘profits and taxing rights’ with respect to multinationals including digital giants such as Amazon and Google. However, Hungary and Ireland were part of a small group of countries that did not agree on the tax rate on multinationals.