From UPSC perspective, the following things are important :
Prelims level : Global Minimum Tax, BEPS
Mains level : Global Minimum Tax Debate
India has joining the OECD-G20 framework for a global minimum tax.
What is this tax deal?
- The proposed solution consists of two components:
- Pillar One is about the reallocation of an additional share of profit to the market jurisdictions and
- Pillar Two consists of minimum tax and subject to tax rules
- Some significant issues including share of profit allocation and scope of subject to tax rules, remain open and need to be addressed.
- Further, the technical details of the proposal will be worked out in the coming months and a consensus agreement is expected by October.
Why did India join?
- The principles underlying the solution vindicates India’s stand for a greater share of profits for the markets, consideration of demand-side factors in profit allocation.
- There is a need to seriously address the issue of cross border profit shifting and need for the subject to tax rules to stop treaty shopping.
- India is in favour of a consensus solution that is simple to implement and simple to comply with.
- At the same time, the solution should result in the allocation of meaningful and sustainable revenue to market jurisdictions, particularly for developing and emerging economies.
What is Base Erosion and Profit Shifting (BEPS)?
- BEPS refers to corporate tax planning strategies used by multinationals to “shift” profits from higher-tax jurisdictions to lower-tax jurisdictions.
- It thus “erodes” the “tax base” of the higher-tax jurisdictions.
- Corporate tax havens offer BEPS tools to “shift” profits to the haven, and additional BEPS tools to avoid paying taxes within the haven.
- It is alleged that BEPS is associated mostly with American technology and life science multinationals.