India has announced its formal opinion on the upcoming OECD – G20 global tax deal stating that a ‘consensus agreement’ is likely to be reached in October of this year. India is in favor of a harmonious solution which may be simple to implement and would have clear tax compliance requirements.

So far, 130 countries have agreed to alter the global taxation framework to require multinational companies to pay their taxes at the location where they actually operate and at a minimum rate of 15 percent. The new regulatory framework should improve the allocation of taxes and provide sources of sustainable tax revenue for developing economies. The majority of the members (including India) of the OECD – G20 Inclusive Framework on Base Erosion and Profit Shifting have agreed to outline a consensus solution to address potential tax queries and challenges arising from the further digitalization of the global economy.

The Framework consists of the two key components, also known as pillars. Pillar one deals primarily with the reallocation of additional share of profit to the market jurisdictions. In particular, it looks into taxing rights for various jurisdictions and identifies such components as customer location, marketing and distribution activities, and establishing mechanisms to have clear tax rules. Pillar two is concerned primarily with both domestic rules and treaty-based rules and is aimed at Government entities, international organizations, and other forms of non-profit organizations. The intricate technical details will be discussed in the coming months and should be finalized by October of this year.

India’s position on this matter has been stated clearly by the Finance Ministry. India supports the need to address the issue of cross border shifting of corporate profits as well as the setting of clear and stricter tax rules to address and prevent tax treaty shopping. India will resume being fully engaged in negotiations to reach a consensus based on the two pillars and have a significant contribution in the implementation of the new international tax rules by October.

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