Countries working to resolve differences over Global tax deal: OECD draft
New Delhi, Oct 11, 2023
FinMin says intensive capacity-building initiatives are imperative for effective implementation
About 140 nations are making progress towards reaching an agreement on the overhaul of global tax norms to ensure that digital technology giants and large multinationals such as Amazon, Google, and Netflix pay taxes wherever they operate, as stated in a draft released by the Organisation for Economic Co-operation and Development (OECD).
Nevertheless, some countries still harbour reservations about the proposed Pillar One solution, and they are diligently working to resolve these differences.
Pillar One is a component of the two-pillar multilateral solution that deals with the reallocation of 25 per cent of non-routine profits earned by the largest and most profitable multinational enterprises (MNEs) operating in their markets, irrespective of their physical presence.
Pillar Two pertains to a minimum tax and is subject to tax rules set at 15 per cent.
“The multilateral tax treaty to implement Pillar One reflects the current consensus achieved among members and represents another significant step towards the practical implementation of the October 2021 agreement,” said OECD Secretary-General Mathias Cormann while releasing the draft on the progress made in the tax deal.
“The international community has been working closely to resolve the remaining technical issues behind this landmark agreement to reform international taxation,” he added.
Even though most nations are in consensus regarding the publication of the multilateral treaty draft report on Wednesday, the treaty is not yet open for ratification and signature due to differences among some nations.
Brazil, Colombia, and India are among the nations that have raised certain reservations about the new framework, expressing concerns about how their existing unilateral measures might interact with the proposed global tax deal.
Notably, the multilateral treaty requires all countries to give up their unilateral measures and commit not to introduce such measures in the future. This obligation is effective until the earlier of December 31, 2023, or the coming into force of the treaty.
According to recent analysis, Pillar One is expected to lead to annual global tax revenue gains ranging from $17 billion to $32 billion, based on 2021 data.
“The new analysis finds that low- and middle-income countries are expected to gain the most as a share of existing corporate income-tax revenues, underscoring the importance of swift and widespread implementation of the reforms,” the draft mentioned.
The treaty also ensures the repeal of and prevention of the proliferation of digital services taxes and similar measures, secures mechanisms to avoid double taxation, and enhances stability and certainty in the international tax system.
The draft has been presented to the Group of Twenty finance ministers and central bank governors ahead of their meeting in Marrakech.
“The meeting discussed the broad agenda for capacity building in relation to the two-pillar international tax package. Revenue Secretary Sanjay Malhotra chaired the event and stressed that intensive capacity-building initiatives are imperative for the effective implementation of the two-pillar international tax package,” stated the Ministry of Finance.
Meanwhile, Pillar Two is also making significant progress.
“With the opening for the signature of the multilateral instrument to implement the subject to tax rule (STTR), the work on the STTR is now largely complete,” noted the draft paper.
The STTR is a treaty-based rule that allows developing countries to “tax back” when certain intra-group payments are subject to nominal corporate income tax rates below 9 per cent.
Pillar Two also introduces model rules for the global minimum tax that countries may incorporate into their domestic laws, ensuring that 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 generate up to $200 billion in additional revenue annually.
[The Business Standard]
