Budget likely to indicate global min tax road map

Mumbai: The forthcoming Budget is likely to indicate a road map for ushering in the ‘Pillar 2’ solution agreed upon by 137 member countries (including India), that are part of OECD’s inclusive framework and the G20.
The Global Anti-Base Erosion (GloBE) rules comprise of two pillars to tackle the issue of taxation in a digital economy. Pillar 2, calls for a global minimum corporate tax of 15% on large multinational enterprises (MNEs), on the prescribed income arising in each of the countries in which they operate.
“The GloBE rules are unlikely to trigger for business operations in India carried out by MNEs, as the effective tax rate in India is higher than the prescribed minimum rate. Nevertheless, one relaxation which would be significant from the GloBE rules perspective would be to ensure adequate carve-outs for regulated sectors viz: International Financial Services Centres in GIFT city and the related tax exemptions,” said Abhishek Goenka, founding partner at Aeka Advisors.
As the OECD is expected to release an implementation framework only in the coming months, the Budget may not contain specific amendments to the I-T Act, but a broad-based reference.
Pillar 2, is founded on three principles: Income inclusion rule (IIR) and undertaxed payment rule (UTPR) — both of which are to be implemented by countries by amending their domestic tax laws — and the subject to tax rule (STTR), which falls within the tax treaty framework and is likely to be covered by multilateral instruments.
Maulik Mehta, corporate & international tax partner at BSR & Co, said, “IIR imposes an additional tax on the ultimate parent entity, in its country of residence, with respect to low taxed income of certain foreign subsidiaries.”
“India’s domestic tax law would require provisions enabling IIR and UTPR. Perhaps the government could issue a consultation paper to seek inputs from stakeholders,” said Jigar Saiya, tax leader at MSKA & Associates.