{"id":10820,"date":"2021-12-23T00:00:00","date_gmt":"2021-12-23T00:00:00","guid":{"rendered":"https:\/\/www.nextias.com\/current_affairs\/uncategorized\/23-12-2021\/oecd-model-on-global-minimum-tax\/"},"modified":"2021-12-23T00:00:00","modified_gmt":"2021-12-23T00:00:00","slug":"oecd-model-on-global-minimum-tax","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/23-12-2021\/oecd-model-on-global-minimum-tax","title":{"rendered":"OECD Model on Global Minimum Tax"},"content":{"rendered":"<p><span style=\"font-size:13pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong><u>In News<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">The <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Organization for Economic Co-operation and Development (OECD) <\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">released detailed rules for the implementation of a far-reaching global tax deal aimed at subjecting multinational enterprises (MNEs) to a <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>15% minimum tax from 2023.<\/strong><\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:13pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong><u>About<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Global Anti-Base Erosion (GloBE):<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"> With the OECD keen that countries bring the so-called Global Anti-Base Erosion (GloBE) rules into domestic legislation in 2022, India\u2019s Budget for 2022-23 will likely spell out India\u2019s position and start laying the legislative framework to incorporate these rules.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>India is a signatory<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">: India is one among 137 countries that are signatory to the new global tax regime.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Exclusions:<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"> a governmental entity, an international organization, a non-profit organization, a pension fund, an investment fund that is an ultimate parent entity, and a real estate investment vehicle that is an ultimate parent entity etc.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Application:<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"> The minimum tax would apply to MNEs with revenue above <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>\u20ac750 million<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"> and is estimated <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>to generate around $150 billion in additional global tax revenues annually<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">.<\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:13pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong><u>The OECD is developing a two-pillar approach to address multinational enterprises (MNEs) exploiting gaps and mismatches between different countries\u2019 tax systems.<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Pillar one<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">: Seeks to achieve a fairer distribution of profits and taxing rights between countries.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Pillar two<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">: Will put a floor on corporate income tax competition by introducing a global minimum rate that countries can use to protect their tax bases.<\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:13pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong><u>Need of this move<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Right to tax<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">: Under the OECD multilateral pact, India would get the right to tax them at the minimum rate of 15%.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Addressing the tax challenge<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">: OECD\/G20 BEPS Project is addressing the tax challenges arising from the digitalisation of the economy.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>A coordinated system of taxation<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">: The GloBE rules provide for a coordinated system of taxation intended to ensure large MNE groups pay this minimum level of tax on income arising in each of the jurisdictions in which they operate.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Clear definition<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">: It has clearly defined the MNEs within the scope of the minimum tax.<\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:13pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong><u>Issues\/ Challenges<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>No distribution of profits<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">: Currently, an Indian MNE could set up a unit in a zero-tax jurisdiction and legitimately pay no taxes there and not distribute profits back to India.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Compliance framework<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">: The government needs to quickly spell out its positions to allow corporations to evaluate and critique their group structure and start building a compliance framework.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Complex rules<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">: These are complex rules and the principle of accounting consolidation.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>More compliance<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">: The term \u2018Permanent establishment has been defined as well under the model rules.<\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">It has surely added more compliance for MNEs in terms of GloBE Information Return to be furnished with the tax administration in order to provide information on the tax calculations made by the MNE under the GloBE Rules no later than 15 months after the last day of the Reporting Fiscal Year.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><span style=\"font-size:13pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong><u>Significance of the move<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>End to the race towards the bottom<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">: The minimum tax, known as Pillar Two, would discourage countries from competing to attract corporations by offering low tax rates.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Imposing extra tax<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">: The new rules also let countries such as India impose an extra tax on companies not meeting a 15% effective minimum rate in another jurisdiction.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Digitalisation and globalization<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">: The Pillar Two model rules provide governments with a precise template for taking forward the two-pillar solution to address the tax challenges arising from digitalisation and globalization of the economy.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>The mechanism for calculation<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">: It has set out a mechanism for calculating an MNE\u2019s effective tax rate on a jurisdictional basis, and for determining the amount of top-up tax payable under the rules.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Other advantages<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">: It prescribes the determination of excess profits, adjusted covered taxes, jurisdictional top-up tax percentage for every low-tax jurisdiction, substance-based income exclusion in computing the GloBE income.<\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:13pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong><u>Way Forward<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>It will mostly benefit the rich OECD nations<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">: Many in developing countries remain sceptical about the gains from the deal, particularly under Pillar One. They argue that the deal will mostly benefit the rich OECD nations that are home to most of the large MNCs.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Race to the minimum<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">: Kenya, Nigeria, Sri Lanka and Pakistan have not joined in the deal. There are fears that the 15% rate will start a race to the minimum, with a large number of nations dropping the corporate tax rate to 15%, leading to an erosion of tax revenues.<\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">The global average corporate tax rate is currently 24%. The tax rate in the African nations is between 25% and 35%.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>The rise in personal income tax rates is feared<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">: One outcome of the deal is a possible contraction of the corporate tax revenues of governments from the lowering of rate to 15%. That will force governments to raise resources from other sources. Thus, a rise in personal income tax rates is feared.<\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Source: <\/strong><\/span><\/span><\/span><a href=\"https:\/\/www.financialexpress.com\/economy\/oecd-releases-model-rules-for-15-global-minimum-tax\/2384913\/\" style=\"text-decoration:none\" target=\"_blank\" rel=\"noopener\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#1155cc\"><strong><u>FE<\/u><\/strong><\/span><\/span><\/span><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In News The Organization for Economic Co-operation and Development (OECD) released detailed rules for the implementation of a far-reaching global tax deal aimed at subjecting multinational enterprises (MNEs) to a 15% minimum tax from 2023. About Global Anti-Base Erosion (GloBE): With the OECD keen that countries bring the so-called Global Anti-Base Erosion (GloBE) rules into [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":10821,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[26,46],"class_list":["post-10820","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-current-affairs","tag-gs-3","tag-indian-economy-related-issues"],"acf":[],"jetpack_featured_media_url":"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2023\/07\/1402098Screenshot_6.png","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/10820","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=10820"}],"version-history":[{"count":0,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/10820\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media\/10821"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=10820"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=10820"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=10820"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}