Global Tax Reform: India's Roadmap on Pillar 2 Expected in Upcoming Budget
Budget 2024: India may announce its roadmap on Pillar 2, which seeks to bring in a minimum 15% corporate tax rate for multinationals.
Global Tax DealPillar 2Corporate Tax RateMultinationalsOecdIndiaBudget 2024Real EstateJun 29, 2024
In 2021, more than 135 countries signed a two-part political agreement that represented the biggest corporate tax reform in more than a century. The Paris-based OECD initially estimated that the initiative would increase global corporate tax revenues by up to $22,000 crore a year, but later revised it to $15,500-19,200 crore yearly.
Over 30 countries, including the UK, South Korea, Japan, and Canada, have already started applying the rules under Pillar 2 from 2024. However, the USA and China have not. India, according to experts, is likely to make an announcement about it in the upcoming Budget.
Riaz Thingna, Partner, GT Bharat, said that there is an expectation that the draft legislation or India's roadmap will be shared with the stakeholders in the upcoming Budget. Sanjay Tolia, Partner, Price Waterhouse & Co LLP, added that around 150 Indian MNCs are covered under this pillar. For these Indian MNCs, if the effective tax rate (ETR) of their subsidiary or branch in a country where they operate is below 15%, they will have to pay a top-up tax.
The ICAI has also issued a guidance note recently for reporting on Pillar 2's impact on the MNC. Moreover, a 3-year transitional safe harbour rule has also been designed. It leverages these Indian MNCs preparing their annual Transfer Pricing Country by Country Reporting (CBCR) documentation.
Sumit Singhania, Partner, Deloitte India, said that on a net impact basis, India would gain under the minimum tax solution as its headline tax rate and average corporate effective tax rate is largely aligned with (or is higher than) 15%.
The countries had fixed the last date to sign the MLC for Pillar 1 on June 30. However, it is yet to be ratified by major countries like the USA, China, and India. In the US, it faces strong opposition from the Republicans, and international tax treaties require a 67% majority in the US Senate for ratification.
Experts said that now that the agreement hangs in balance, the equalisation levy may be extended further. The most likely scenario at this stage is that the USA will not sign or ratify the treaty just yet and from the Indian perspective, the Equalisation Levy will continue in the short run.
Frequently Asked Questions
What is Pillar 2 of the global tax deal?
Pillar 2 seeks to bring in a minimum 15% corporate tax rate for multinationals with annual global revenues higher than 75 crore euros.
How many countries have started applying the rules under Pillar 2 from 2024?
Over 30 countries, including the UK, South Korea, Japan, and Canada, have already started applying the rules under Pillar 2 from 2024.
What is the impact of Pillar 2 on Indian MNCs?
Around 150 Indian MNCs are covered under this pillar. For these Indian MNCs, if the effective tax rate (ETR) of their subsidiary or branch in a country where they operate is below 15%, they will have to pay a top-up tax.
What is the current status of the equalisation levy in India?
India has been imposing an equalisation levy (EL) of 2% on the e-commerce supply of services since 2020, which was later extended till June 30.
What is the expected outcome of the global tax deal on India's revenue?
India would gain under the minimum tax solution as its headline tax rate and average corporate effective tax rate is largely aligned with (or is higher than) 15%.
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