OECD Fixes Minimum Tax of 15% on MNCs from 2023

Multination corporations will be subject to a minimum tax of 15% from 2023 and those with profits above a threshold will have to pay taxes in the markets they derive business from, as OECD on Friday finalized a landmark reform of international tax system.

The new framework, backed by 136 countries, including India, seeks to ensure a fair share of taxes for countries where multinationals and global digital companies such as Netflix, Google earn revenues from.

“The landmark deal, agreed by 136 countries and jurisdictions representing more than 90% of global GDP, will also reallocate more than $125 billion of profits from around 100 of the world’s largest and most profitable MNEs (multinational enterprises) to countries worldwide, ensuring that these firms pay a fair share of tax wherever they operate and generate profits,” the OECD (Organization of Economic Cooperation and Development) said.

The two-pillar solution will be delivered to the G20 finance ministers meeting in Washington DC on October 13, and then to the G20 Leaders’ Summit at the end of October. Countries are aiming to sing a multilateral convention during 2022, with effective implementation in 2023, it said.

Under the agreement, countries levying tax on digital transactions would have to withdraw those levies.

India, for instance, will have to withdraw its equalization levy that it imposes on overseas digital companies. “No newly enacted digital services taxes or other relevant similar measures would be imposed on any company from October 8, 2021 and until the earlier of December 31, 2023 or the coming into force of the multilateral convention,” said Sandeep Jhunjhunwala, partner at professional services firm Nangia Andersen. “The modality for the removal of existing digital services taxes and other relevant similar measures needs to be appropriately coordinated.”

New Delhi has backed the OECD-Base Erosion Profit Shifting talks since the beginning and has been keen on the deal.

The framework has two pillars. Pillar one seeks to ensure a fairer distribution of profits and taxing right among countries with respect to the largest and most profitable multinational enterprises.

Multinational enterprises with global sales above 20 billion and profitability above 10% will be covered by the new rules, with 25% of profit above the 10% threshold to be reallocated to market jurisdictions.

Pillar two introduces a global minimum corporate tax rate set at 15%.

The new minimum tax rate will apply to companies with revenue above 750 million and is estimated to generate around $150 billion in additional global tax revenues annually.

This will bring more certainty and help ease trade tensions, the statement said. S-ET

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