Deprecated (16384): The ArrayAccess methods will be removed in 4.0.0.Use getParam(), getData() and getQuery() instead. - /home/brlfuser/public_html/src/Controller/ArtileDetailController.php, line: 73
 You can disable deprecation warnings by setting `Error.errorLevel` to `E_ALL & ~E_USER_DEPRECATED` in your config/app.php. [CORE/src/Core/functions.php, line 311]
Deprecated (16384): The ArrayAccess methods will be removed in 4.0.0.Use getParam(), getData() and getQuery() instead. - /home/brlfuser/public_html/src/Controller/ArtileDetailController.php, line: 74
 You can disable deprecation warnings by setting `Error.errorLevel` to `E_ALL & ~E_USER_DEPRECATED` in your config/app.php. [CORE/src/Core/functions.php, line 311]
Warning (512): Unable to emit headers. Headers sent in file=/home/brlfuser/public_html/vendor/cakephp/cakephp/src/Error/Debugger.php line=853 [CORE/src/Http/ResponseEmitter.php, line 48]
Warning (2): Cannot modify header information - headers already sent by (output started at /home/brlfuser/public_html/vendor/cakephp/cakephp/src/Error/Debugger.php:853) [CORE/src/Http/ResponseEmitter.php, line 148]
Warning (2): Cannot modify header information - headers already sent by (output started at /home/brlfuser/public_html/vendor/cakephp/cakephp/src/Error/Debugger.php:853) [CORE/src/Http/ResponseEmitter.php, line 181]
Notice (8): Undefined variable: urlPrefix [APP/Template/Layout/printlayout.ctp, line 8]latest-news-updates/a-far-reaching-tax-measure-ipsita-agarwalla-and-meyyappan-nagappan.html"/> LATEST NEWS UPDATES | A far-reaching tax measure -Ipsita Agarwalla and Meyyappan Nagappan | Im4change.org
Resource centre on India's rural distress
 
 

A far-reaching tax measure -Ipsita Agarwalla and Meyyappan Nagappan

-The Hindu

The U.S. push for a global minimum corporate tax may help India, but it can also cause international disagreements

The Pillar Two proposal was the Organisation for Economic Co-operation and Development’s (OECD) plan to plug the remaining Base Erosion and Profit Shifting (BEPS) issues and provide jurisdictions the right to “tax back” where other jurisdictions have either not exercised their primary taxing right or have exercised it at low levels of effective taxation. The move intends to achieve minimum effective taxation of more than 10%, possibly up to 15%, given the latest proposal put forward by the United States. The objective is to minimise tax incentives and ensure that companies choose to be situated in a particular country based on other commercial benefits.

In its recent proposal, the U.S. sought to impose a global minimum tax on foreign income earned by U.S. corporations. The proposal is perhaps intended to disincentivise American companies from inverting their structures due to the increase in the U.S. corporate tax rate. The proposal is similar to Pillar Two, except for the rate of the effective minimum tax. While the OECD was considering a 10-12% rate, the U.S. proposed a 21% rate. This caused pushback from countries such as Ireland, which made a case for fiscal autonomy for smaller jurisdictions to compete with larger economies. The U.S. is now discussing a floor of 15% for the minimum tax rate despite the fact that it may have difficulty securing Congress support if the floor is too low. Even at 15%, it is unclear whether Ireland would agree, given its 12.5% marginal rate, thereby impacting a European Union-wide adoption of the 15% rate.

India has been part of the Pillar Two discussions and has not objected in principle to the proposal. The proposal, along with the increased tax bill for U.S. companies, may benefit the Indian revenue department. The tax department might benefit even at a 10% rate since the proposal would cover offshore structures set up by Indian companies.

Pillar Two acts as a set of controlled foreign corporation rules, where, for instance, if an Indian-headquartered multinational corporation (MNC) has an entity in Singapore or the Netherlands through which global operations are run, and its income from global operations is not taxed at an effective rate of 10% or 15%, then it can be taxed in India. The State of Tax Justice report of 2020 notes that India loses over $10 billion in tax revenue due to the use of offshore structures, particularly through investments made by Indian residents through Mauritius, Singapore and the Netherlands. This is supported by the overseas direct investment (ODI) data from 2000 to 2021 published by the Reserve Bank of India, where the cumulative ODI for the period primarily went through Singapore, Mauritius, the U.S., the Netherlands, and the United Kingdom.

Start-ups and large Indian conglomerates commonly use offshore structures for conducting global operations. Revenue from such operations is often retained offshore and not repatriated to India. Tax advantages incentivise such structures, due to which taxes on such income are not paid in India. Once these proposals are implemented, Indian companies would have to pay additional taxes on their offshore structures to the extent that the effective rate of tax is lower than the global minimum tax rate.

Please click here to read more.