A Bigger Piece Of The Action

Context: India must beef up its tax administration, even while ensuring that it gets a larger share of the tax pie.

About Global Minimum Tax Framework

• The initiative calls for a global minimum levy of 15%, enshrining the right of countries to tax profits of large MNCs where they do business or have customers, but lack a physical presence.
• Overall, the reform, to be carried through binding, multilateral tax pacts, will deter MNCs from using differences in tax rules to shift profits to tax havens and prevent BEPS, helping governments to collect more taxes. 
• In return, India, and other countries, will scrap their digital taxes aimed primarily at the big US tech firms like Alphabet (Google), Meta (Facebook) and Amazon.
• India will withdraw EL, a.k.a. the ‘Google Tax’, once the global tax reform agreement is implemented.
• Five European countries — France, Austria, France, Italy and Spain — along with Britain, are now bound by a pact with the US on the timing and method of their digital tax withdrawal.
• Some 136 countries, representing over 90% of the global GDP, have signed on to the OECD-brokered deal.

Way forward

• India should negotiate hard while working out the finer details of how the distributable profits are to be computed (and which of the countries will have to give up profits).
• Caution: India needs to be watchful, as it may end up surrendering taxes on the profits made by some subsidiaries of MNCs, particularly in the infotech sector.
• Bring poorer countries like Nigeria and Kenya on board: Their concerns that plan to reallocate the right to tax a slice of MNCs’ profits above ‘some routine level’ is way too complex, considering the suboptimal revenue gains shall be addressed.
• Swift implementation: The OECD must swiftly make the model rules to ensure implementation of the tax reform by 2023.

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