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Business News›News›Economy›Policy›OECD fixes minimum tax of 15% on MNCs from
2023



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OECD FIXES MINIMUM TAX OF 15% ON MNCS FROM 2023

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OECD fixes minimum tax of 15% on MNCs from 2023
By
Deepshikha Sikarwar

, ET BureauLast Updated: Oct 09, 2021, 12:28:00 AM IST
Synopsis


A MILESTONE GLOBAL DEAL TO ENSURE BIG COMPANIES PAY A MINIMUM TAX RATE OF 15%
AND MAKE IT HARDER FOR THEM TO AVOID TAXATION HAS FINALLY BEEN AGREED AFTER
IRELAND, ESTONIA AND HUNGARY SIGNED UP TO THE ELUSIVE ACCORD.

iStockCountries are aiming to sign a multilateral convention during 2022, with
effective implementation in 2023.
Multinational corporations will be subject to a minimum tax of 15% from 2023, in
a major reform of the international tax system finalised by the OECD on Friday.



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The framework, backed by 136 countries, including India, seeks to ensure a fair
share of taxes for countries where multinationals and global digital companies
such as Netflix, Google earn revenues from.



"The landmark deal, agreed by 136 countries and jurisdictions representing more
than 90% of global GDP, will also reallocate more than $125 billion of profits
from around 100 of the world’s largest and most profitable MNEs to countries
worldwide, ensuring that these firms pay a fair share of tax wherever they
operate and generate profits, " the OECD said in a statement.

The two-pillar solution will be delivered to the G20 Finance Ministers meeting
in Washington DC on 13 October, then to the G20 Leaders Summit in Rome at the
end of the month.

Countries are aiming to sign a multilateral convention during 2022, with
effective implementation in 2023, it said.



The convention is already under development and will be the vehicle for
implementation of the newly agreed taxing right under Pillar One, as well as for
the standstill and removal provisions in relation to all existing Digital
Service Taxes and other similar relevant unilateral measures.

This implies that India will have to withdraw its equalisation levy that it
imposes on overseas digital companies.

“No newly enacted Digital Services Taxes or other relevant similar measures
would be imposed on any company from October 8, 2021 and until the earlier of
December 31, 2023 or the coming into force of the Multilateral Convention. The
modality for the removal of existing Digital Services Taxes and other relevant
similar measures needs to be appropriately coordinated,” said Sandeep
Jhunjhunwala, partner, Nangia Andersen.

New Delhi has backed the OECD-Base Erosion Profit Shifting talks since the
beginning and has been keen on the deal.

Four countries - Kenya, Nigeria, Pakistan and Sri Lanka, (out of the 140 members
of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting) - have
not yet joined the agreement, it added.

This is a major victory for effective and balanced multilateralism. It is a
far-reaching agreement which ensures our international tax system is fit for
purpose in a digitalised and globalised world economy. We must now work swiftly
and diligently to ensure the effective implementation of this major reform,”
said OECD Secretary-General Mathias Cormann.

The framework has two pillars. Pillar One seeks to ensure a fairer distribution
of profits and taxing rights among countries with respect to the largest and
most profitable multinational enterprises.

It will 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.

Specifically, multinational enterprises with global sales above EUR 20 billion
and profitability above 10% will be covered by the new rules, with 25% of profit
above the 10% threshold to be reallocated to market jurisdictions. Original
draft had proposed profit in excess of 10% of revenue be allocated to market
jurisdictions with nexus using a revenue-based allocation. India has pressed for
a higher apportionment.

Pillar Two introduces a global minimum corporate tax rate set at 15%. The new
minimum tax rate will apply to companies with revenue above EUR 750 million and
is estimated to generate around $ 150 billion in additional global tax revenues
annually. This will bring more certainty and help ease trade tensions, the
statement said. The OECD will develop model rules for bringing Pillar Two into
domestic legislation during 2022, to be effective in 2023.

( Originally published on Oct 08, 2021 )



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