OECD has come out with a new multilateral convention to check base erosion and profit shifting to ensure that MNCs pay a fair share of taxes in the country of operation. "The ... convention moves the international community a step closer towards finalisation of the Two-Pillar Solution to address the tax challenges arising from the digitalisation and globalisation of the economy," OECD said in a statement.
The proposed two-pillar solution consists of two components - Pillar One is about reallocation of additional share of profit to the market jurisdictions and Pillar Two consists of minimum tax and subject to tax rules.
The Organisation for Economic Cooperation and Development (OECD) said that the Multilateral Convention (MLC) to implement Amount A of Pillar One reflects the current consensus achieved among 138 member countries.
It further said that 'Amount A' of Pillar One coordinates a reallocation of taxing rights to market jurisdictions with respect to a share of the profits of the largest and most profitable multinational enterprises (MNEs) operating in their markets, regardless of their physical presence.
As per the MLC, the 'Amount A' deals with reallocation of taxing rights of over 25 per cent of the residual profit of the largest and most profitable MNEs to the jurisdictions where the customers of those MNEs are located.
"Under Pillar One, taxing rights on about USD 200 billion in profits are expected to be reallocated to market jurisdictions each year. This is expected to lead to annual global tax revenue gains of between USD 17‑32 billion, based on 2021 data," the OECD said.
It further said that new analysis finds that low and middle-income countries are expected to gain the most as a share of existing corporate income tax revenues, underlining the importance of swift and widespread implementation of the reforms.
The OECD said pillar two introduces model rules for the global minimum tax that countries may implement into their domestic law which will ensure large MNEs are subject to an effective tax rate of 15 per cent on their profits in every jurisdiction where they operate.
The global minimum tax is expected to raise up to USD 200 billion in additional revenue annually, the OECD said.
Nangia Andersen India Chairman Rakesh Nangia said significant progress as per agreed timelines has been reported such as release of a text of the Multilateral Convention (MLC) for implementation of Amount A of Pillar One, public consultation on Amount B, and release of an Implementation Handbook providing an overview of the key provisions of the global minimum tax and considerations to be taken into account by tax policy and administration officials and other stakeholders in assessing their impl ..
The Inclusive Framework formally adopted the new Multilateral Convention to facilitate the implementation of the Pillar Two Subject to Tax Rule (STTR MLI.).
"It is a matter of time that India will bring about requisite statutory amendment/s in its domestic regulations to adopt the GloBE (Global Anti-Base Erosion Model) Rules," Nangia said.
Shardul Amarchand Mangaldas & Co Partner Gouri Puri said the OECD/ G20 Inclusive Framework has released the texts for the multilateral conventions to implement Amount A of Pillar one (which is meant to substitute equalisation levy) and the subject to tax rule under Pillar two.
"This is a significant step towards achieving global international tax reform. As momentum builds to open these conventions for signatures, countries have to take steps towards domestic consultation and administrative processes for signatures and ratification of the convention ..
Source Name : Economic Times