India agrees to global tax framework on taxing multinationals

UNITED NATIONS: India has agreed to a pathbreaking international framework with 129 other countries for taxing multinationals that could impact its ability to tax them and have the potential to douse trade wars over taxing tech giants.

India and the other countries issued a joint statement on Thursday affirming support for the proposed framework which has at its core a global minimum corporate tax of 15 per cent and makes way for countries to tax multinational enterprises (MNEs), especially tech giants like Google, Facebook and Amazon, on their earnings there.

"It would re-allocate some taxing rights over MNEs from their home countries to the markets where they have business activities and earn profits, regardless of whether firms have a physical presence there," said the Organisation for Economic Cooperation and Development (OECD), which coordinated the development of the plan.

It "will ensure a fairer distribution of profits and taxing rights among countries with respect to the largest MNEs, including digital companies", the OECD said.

India and the administration of President Joe Biden are embroiled in a dispute over New Delhi imposing a two per cent tax on earnings in the country by foreign technology and e-commerce companies like Amazon, Facebook and Google.

The OECD, which said that it expected the framework to be finalised in October for implementation in 2023, estimated that it would generate additional annual global tax revenues of around $150 billion that will be shared by various countries.

The framework got the approval of the G7 leaders last month and is expected to come up at the meeting of the finance ministers of the G20 group of major economies in Venice next week.

Biden and his Treasury Secretary Janet Yellen propelled the negotiations for the framework with the goal of preventing US companies fleeing to countries like Ireland, Hungary and Lichtenstein and those in the Caribbean region with lower corporate taxes.

Notably most of those countries did not sign the statement agreeing to the framework.

In hopes that at least the major low-tax countries would fall in line, Yellen said: "Today is an historic day for economic diplomacy. For decades, the United States has participated in a self-defeating international tax competition, lowering our corporate tax rates only to watch other nations lower theirs in response. The result was a global race to the bottom.

"Today's agreement by 130 countries representing more than 90 per cent of global GDP is a clear sign: the race to the bottom is one step closer to coming to an end."

The deal has two parts or "pillars", as the OECD calls it.

The first ensures the rights of countries to tax the MNEs on their incomes there. "Under Pillar One, taxing rights on more than $100 billion of profit are expected to be reallocated to market jurisdictions each year."

The second pillar sets the global minimum for taxes at 15 per cent without a ceiling on the maximum. With a minimum rate of at least 15 per cent, it "is estimated to generate around USD 150 billion in additional global tax revenues annually", the OECD said. (IANS)

Also Read: High GST collection shows economic resilience: Minister Anurag Thakur

Also Watch: